London Regains World’s Most Expensive Office Market Crown

Calgary’s rent increases by 29% energy and technology sector expansion. Vancouver remains priciest space in Canada

TORONTO, Ontario--(BUSINESS WIRE)--Cushman & Wakefield:

• London leapfrogs Hong Kong to take top spot for first time since 2008
• Rio de Janeiro soars from 8^th to 3^rd with a rental uplift of 43% on previous year
• Global office rents increase by 3%
• Vancouver ranks 29^th overall, unchanged from 2011

London’s West End is the world’s most expensive office market once again after regaining its crown from Hong Kong’s Central Business District (CBD), according to research published today in Cushman & Wakefield’s Office Space Across the World 2013.

The report highlights the scarcity of quality space in London which has increased competition and consequently inflated office rents by 2% in the West End to make them the most expensive in the world.

“As a truly global city, London’s appeal continues unabated. In conjunction with a scarcity of good quality stock prime rents have increased over the year,” says Digby Flower, Cushman & Wakefield’s Head of London Markets. He added: “Equally importantly we expect rents to grow further as we get into recovery mode.”

Hong Kong’s CBD drops down into second place, while the Zona Sul area of Rio de Janeiro climbs from 8^th last year and powers into the top three most expensive office locations in the world as a result of a 43% rental increase compared to 2011.

Globally, the office market witnessed prime rents rise by 3% in 2012, but this was largely driven by the impressive levels of growth in South America, particularly Brazil and Colombia. However, although prime rents expanded on a global basis, many markets suffered under continuing economic uncertainty and this led to increased occupier caution. Cushman & Wakefield expects the trend of companies proactively trying to reduce office occupancy costs to continue as the overall global economic outlook remains unsure.

TOP 10 MOST EXPENSIVE LOCATIONS BY COUNTRY
2011 RANK	2012 RANK	COUNTRY	CITY	LOCATION	OCCUPANCY COST (€/SQ.M/YEAR)	OCCUPANCY COST (US$/SQ.FT/YEAR)
2	1	UK	London	West End	2,137	262
1	2	Hong Kong	Hong Kong	CBD	1,505	184
8	3	Brazil	Rio de Janeiro	Zona Sul	1,343	165
5	4	India	New Delhi	Connaught Place	1,324	162
3	5	Japan	Tokyo	CBD (5 Central Wards)	1,274	156
4	6	Russia	Moscow	CBD	1,141	140
6	7	China	Beijing	CBD	1,074	132
7	8	USA	New York	Midtown (Madison/5^th Avenue)	1,052	129
9	9	Australia	Sydney	CBD	992	122
10	10	France	Paris	CBD	915	112

Source: Cushman & Wakefield 2013

Americas
The Americas region saw the highest rental growth over the year as prime rents moved up by 10%.

Rio de Janeiro is the most expensive city within the Americas and ranks in 3^rd place globally – five places in front of 2011’s placing of 8^th. The city’s Zona Sul submarket has seen rents increase by an impressive 43% over the last year – this is due to the scarcity of high-quality space and strong occupier demand. However, interest in South America was not purely limited to Brazil – Bogotá’s Andino submarket in Colombia recorded a 65% rise in prime rents while neighbouring Lima, Peru, increased by 7%.

Overall, North America’s prime rents rose by 9% in 2012 but this can be attributed to a few standout markets such as San Francisco (19%) and Calgary (29%) which saw significant increases on the back of energy and technology sector expansion.

The Canadian economy’s rate of expansion eased after a period of positive growth in the beginning of the year. A softening of occupier demand occurred in major cities in 2012, though growth remained expansionary and led to rental rises over the year, with double-digit prime rental growth in Toronto and Calgary.

“Demand in Toronto’s core is heavily influenced by the financial and professional services sectors, which continued to buoy leasing activity over the year,” said Michael Caplice, Senior Managing Director Office Leasing in Toronto.

“The continued shortage of high-quality space has been putting upward pressure on prime rents in Calgary, which increased by almost 30%. Calgary’s office market is driven by the oil and gas sectors and with the potential for weaker oil prices in 2013, occupier demand could slow.”

Apart from Rio de Janeiro, New York’s Midtown (Madison/5th Avenue) is the only other city within the Americas region to place in the top 10 most expensive global office markets by country ranking – it comes in at 8^th, down one place from last year.

AMERICAS CITIES WITH LARGEST PRIME RENTAL GROWTH 2012
2012 RANK	COUNTRY	CITY	LOCATION	RENTAL GROWTH (%)
1	Colombia	Bogotá	Andino	65
2	Brazil	Rio de Janeiro	Zona Sul	43
3	Brazil	São Paulo	Faria Lima	40
4	Colombia	Bogotá	Avenida Chile	38
5	Canada	Calgary	CBD	29

Source: Cushman & Wakefield 2013

EMEA
Subdued business confidence affected prime rental performance within EMEA as activity in the region continued to be sluggish for the third consecutive year. Rental growth was largely nonexistent, particularly in Western Europe, where figures barely changed over the year, lifting by 0.3%. The Central and Eastern Europe (CEE) region outperformed Western Europe in terms of rental growth, albeit with a minimal increase of only 2%.

London’s West End remained the most expensive location in EMEA for another consecutive year. Its solid rental growth, driven by a lack of high-quality space and coupled with relatively steady demand, particularly from the technology sector, ensured competition for prime office space has continued. Prime rents increased towards the end of 2012, pushing London not only to the top of the EMEA regional ranking but also for the first time since 2008 to first place in the global ranking as the most expensive office location worldwide.

Barrie David, Senior Research Consultant in Cushman & Wakefield’s European Research Group, said: “The eurozone debt difficulties continued to have a destabilising effect on business confidence, leading to mostly flat rental performances across the EMEA region. Occupiers remained uncertain with the primary focus concentrated on cost-cutting strategies such as lease renegotiation or moving to more efficient space.”

Norway also saw a strong economic performance, which in turn spurred on robust occupier interest and increasing rents (11% rental growth on 2011).

Additionally, Kazakhstan (22% increase) and Turkey (13% increase) saw burgeoning demand from multinational companies, with Almaty and Istanbul becoming increasingly important regional business and financial centres.

EMEA CITIES WITH LARGEST PRIME RENTAL GROWTH 2012
2012 RANK	COUNTRY	CITY	LOCATION	RENTAL GROWTH (%)
1	Kazakhstan	Almaty	CBD	22
2	Turkey	Istanbul	European side (Levent)	16
3	Finland	Helsinki	CBD	14
4	Norway	Oslo	CBD	12
5	Norway	Bergen	CBD	10

Source: Cushman & Wakefield 2013

Asia Pacific
Slower economic growth affected Asia as prime rents rose by only 3% over the year. Despite a clear deceleration in prime rents in both Hong Kong and Tokyo, the two cities ranked 2^nd and 5^th respectively in the world’s most expensive office locations, highlighting their importance as global business centres.

John Siu, Executive Director of Cushman & Wakefield Hong Kong, said: “In the last 12 months, we saw office demand in the Greater Central area of Hong Kong experience a slowdown, resulting in a sizable rental decline. Demand fell because of the restructuring among banking and financial institutions which led to office space reduction. Rents will still experience some downward pressure in 2013 due to slightly elevated availability but we believe they will begin to recover, starting in early 2014.”

Beijing, which has experienced previously two years of massive prime rental growth, drops one place to 7^th in the global ranking as rents remained unchanged over the last 12 months. Surplus space has provided a number of alternatives in an increasingly tenant-led market in the city. Connaught Place in New Delhi, India, also posted a considerable rise – prime rents increased by 25% in the last 12 months.

In South East Asia, prime rents rose by 6% across the Philippines – caused by demand from the business process outsourcing (BPO) sector – while Jakarta’s CBD in Indonesia experienced a notable rental rise in 2012 of 46%.

ASIA PACIFIC CITIES WITH LARGEST PRIME RENTAL GROWTH 2012
2012 RANK	COUNTRY	CITY	LOCATION	RENTAL GROWTH (%)
1	Indonesia	Jakarta	CBD	46
2	India	New Delhi	Connaught Place	25
3	India	Chennai	CBD	21
4	India	Kolkata	CBD	12
5	China	Shenzhen	Futian	11

Source: Cushman & Wakefield 2013

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