January 25, 2013
London’s West End has overtaken Hong Kong’s Central district as the world’s costliest office location according to a new report from property consultancy DTZ. The annual occupancy cost per workstation in the West End was stable last year at $23,500 (£14,900) but moved from fifth to gain top spot as costs in Tokyo, Hong Kong, Dubai and Paris fell. Three weeks ago we reported that firms were migrating from the West End to London districts such as Clerkenwell and Shoreditch to take advantage of lower costs and pools of talent in new industries.
The DTZ report measured costs in 126 business districts in 49 countries, included items like rent, maintenance and property taxes. It found that average global office occupancy costs grew by 1 percent over 2012 and DTZ said it expects them to increase by 2.3 percent over the next two years, boosted by demand from firms for offices in emerging, Asian markets like Beijing and Jakarta.
Ranked fifth in last year’s survey, London’s West End has taken the number one spot, displacing Tokyo. It also jumps 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 West End’s rise is due to it experiencing a short, sharp rental correction in 2008. This is in contrast with the other top-four locations, which saw their rents decline during the course of 2009.
Overall, all the top ten global locations experienced either negative or neutral growth in occupancy costs during 2009. New entrants to the 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 saw sharp falls. Paris and Dubai dropped out of the top five in the global ranking, whilst Moscow became even 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 Kiev, which both saw occupancy costs plummet by over a half.
Karine Woodford, Head of Real Estate Strategy at DTZ, said: “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, and we may see multi-national companies taking advantage of this shift and relocating their operations accordingly.”