Twelve of the world's 50 most expensive office markets are located in the UK, compared with just two in the US—Midtown at $103.43 and suburban Los Angeles, where occupancy costs average $62.06 per sf. Canada and China also figure in the rankings with two markets each. On a continent-by-continent basis, Europe leads the way with 29 of the 50 most expensive office markets, followed by Asia with 12, North America with four, Australia with three and South America with two.
Among markets with the fastest-growing occupancy costs, Midtown just misses getting a spot in the top 20, coming in at number 21 with a 22.7% increase compared to a year earlier. That's slightly higher than the 22.6% gain experienced by Bangalore, India.
Domestically, three US markets—suburban Miami with a 28.9% increase, Seattle's CBD at 25.8% and Houston at 24.7%—have experienced more rapid growth in occupancy costs over the past year than Midtown, although in this ranking Midtown comes in slightly higher than London's West End. Downtown's 15.7% increase in occupancy costs over the past 12 months earned it a spot in 44th place.
"Office occupancy costs are continuing to defy sluggish economic conditions and the credit crunch, as they rise faster than global inflation," says Dr. Raymond Torto, CBRE's global chief economist, in a prepared statement. "These cost increases are dominated by emerging markets, caused by both supply and demand imbalance and the depreciation of the dollar relative to local currencies. In some of these emerging markets, class A office space is seriously lacking."
A report issued earlier this year, Cushman & Wakefield's Office Space Across the World 2008 survey, also ranked Midtown Manhattan as a bargain among its major competitors. In 10th place, New York City finished behind such world capitals as London, which finished first, Hong Kong, Tokyo, Moscow and Paris.
In common with CBRE's survey, C&W's report studied rent, taxes and utility costs, which combine for an occupancy cost. New York City's occupancy cost is $100 per sf, slightly lower than the $103.43 reported by CBRE. London's West End is $312 per sf in C&W's ranking, compared to the figure of $299.54 reported by CBRE.
"As a place to do business globally, New York has a competitive advantage because it is relatively inexpensive compared with other world capitals," notes Maria Sicola, executive managing director of research at C&W, in a prepared statement. "Cost is a big driver for multinational corporations."
Looking ahead, Elaine Rossall, head of business space research & consultancy for C&W in the Europe/Middle East/Africa region, says in a prepared statement that the real estate community is "unlikely to know the full effects of the current credit squeeze on the world's main office locations until further into 2008. In the meantime, we foresee the market for the right product in the right location remaining robust, especially in the more buoyant markets of Asia Pacific, although expectations are that last year's strong rental growth will ease this year."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
