US office rents are significantly cheaper than other major global office markets, according to a new report from Commercial Café. West Los Angeles is the tenth most expensive city in the US with per square foot rents of $55.2 per square foot, which falls far behind cities like Istanbul, at $56 per square foot, and Milan, at $61.72 per square foot. Hong Kong and Beijing take the top spots on the list, and pricey US markets like New York and San Jose do make their way into the top ten. We sat down with Commercial Café analyst Ionut Ciutac to talk about the report and why the US offices are considered a discount
GlobeSt.com: Why are office rents in the US lower than office rents in other major global markets?
Ionut Ciutac: It's important to note the fact that different currencies and their rates have an impact on how expensive office rent rates are in certain cities in relation to U.S. cities. Also, when we talk about superstar cities in the U.S. we think of places that have both a lively startup scene that manages to attract tech talent, as well as an overall stability and diversity of the local economy; the increase in office demand due to new businesses springing up than boosts rents. This pattern is not unique to the U.S., of course, and in some locations it is more pronounced due to population growth, higher percentages of economic growth (especially in up-and-coming office markets), different living costs, and existing office inventory.
GlobeSt.com: Is this a trend that is changing?
Ciutac: Office rents are closely tied to how attractive a city is in the eyes of both employees and businesses, as well as to the overall health of the local and national economy. With growing office demand in many urban centers, investors are trying to increase their yields by higher asking rates. All this why keeping an eye on current office developments in their region.
GlobeSt.com: What are the most expensive US markets, and how do the top US markets stack up globally?
Ciutac: Manhattan is predictably the most expensive U.S. office market, with a $153.5 annual rent per square foot. Compared to the global number one, Hong Kong (Central), it is a good $110 cheaper, landing just below another pricy Asian office market, Beijing's Finance Street. San Jose (with $111 annual rent/square feet) and San Francisco (with $88.63 annual rent/square feet) would make the Top 10 most expensive cities for office investment in the world list, but they are outranked by office markets in London, Shanghai (Pudong), New Delhi and Paris.
GlobeSt.com: How do lower rents affect US office investment activity?
Ciutac: While in the short term, lower rents also mean lower returns for investors, in up-and-coming office markets it can be seen as an opportunity, for higher returns at a later date, when the market gains momentum. Investors may be focusing on development when returns from rents are lower, trying to maximize their profits by offering tenants trophy buildings with top-notch amenities.
GlobeSt.com: How do Los Angeles office rents, specifically, compare to top global markets?
Ciutac: Los Angeles (West) closes the Top 10 U.S. office rent list, with a $55.44 annual rent per square foot, around three times more affordable than Manhattan. When compared to other office markets around the world, L.A. falls outside the Top 20, coming in just behind Guangzhou in China, and above Frankfurt, Germany's financial powerhouse. Just as a comparison, Sydney closes the list of Top 10 office rents outside the U.S., with a $83.39 annual rent per square foot, a good $28 more than L.A.'s rates.
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Kelsi Maree Borland
