Paris is no longer among the top five most expensive office locations in the world, as London's West End entered 2010 as the world's most expensive city to occupy office space in, according to DTZ's latest Global Occupancy Costs survey.
Ranked fifth in last year's survey, London's West End has taken the number one spot, displacing Tokyo and jumping above Paris, Dubai and Hong Kong, which were ranked second, third and fourth. Paris and Dubai have now fallen from the top five to take sixth and eleventh place respectively, whilst Hong Kong stays put in fourth place.
The rise of London's West End is due to it experiencing a short, sharp rental correction in 2008. This is in contrast with Paris and the other top locations, which saw their rents decline during the course of 2009. Overall, all of the top ten global locations experienced either negative or neutral growth in occupancy costs during 2009.
The report, a guide to total office occupancy costs across 116 business districts in 47 countries and territories, is DTZ's 13th annual survey and assesses the main components of occupancy costs in major office markets across the globe, ranking each location based on annual costs per workstation.
New entrants to the top ten
Emerging as new entrants within the global top ten were Zurich, Boston and Frankfurt, which ranked eighth, ninth and tenth respectively. The shift in position of these markets was due to more moderate rental decline in comparison to other locations.
A number of locations became much less expensive. Paris and Dubai dropped out of the top five in the global ranking, whilst Moscow became more affordable after it shifted from 11th to 36th place.
However, the sharpest falls within the global ranking were recorded in those markets which have seen significant rental growth in recent years, most notably Singapore and Kyiv (Kiev), which both saw occupancy costs plummet by 51% year-on-year (in local currency). Singapore felt the impact of the global economic crisis particularly badly, as weak occupier demand collided with a substantial amount of new supply to drag down rents and thus total occupancy costs. In Kyiv, demand for office space was severely impacted by the global recession, with take-up in 2009 less than half the volume recorded in 2008. Nevertheless, despite weak demand, the office market in Kyiv remains structurally undersupplied.
Karine Woodford, Head of Real Estate Strategy at DTZ, comments: "In the current market, new occupiers will benefit from a wider and better pool of properties to choose from. As occupancy costs in prime locations become more affordable and space more available, a larger number of occupiers will be able to consider buildings in prime locations. Indeed, the silver lining for tenants actively looking for office space is that they may find rents quickly dropping to levels they cannot resist. With falling rents and more supply to choose from, the office market will offer tenants real value for money in the current climate."
Looking ahead to 2013
DTZ Research has started forecasting occupancy costs for the first time to assist clients' in their longer term planning. Growth in occupancy costs is expected to be relatively muted over the 2010 -13 forecast period, in contrast to the strong growth in occupancy costs experienced in recent years. This reflects the global economic outlook which is impacting on firms' hiring decisions and consequent demand for office space, resulting in weak rental growth in the near term.
DTZ forecasts indicate that Asia Pacific will experience the strongest growth in occupancy costs over the next four years as the region's economic growth is expected to continue to surpass that in Europe and the United States. The region features three of the world's top five fastest growing markets in terms of occupancy costs per workstation Hong Kong, Guangzhou and Bengalaru, which are expected to grow by 8.82%, 4.84% and 4.36% respectively between now and 2013 with Hong Kong predicted to emerge