As commercial real estate becomes increasingly important to the global economy and the demand for office space continues to struggle, prices have dropped in the world's most prime locations.
Recently, Cushman & Wakefield released its annual "Office Space Around the World" report, which surveys the world's major business centers, comparing how corporate rental prices have changed over the past year. Out of 131 cities, the report found that 86% saw a drop in prices for premium office space, while 9% saw price growth and 5% remained stable. Of these locations, the average drop was approximately 10%, compared to about 3% average growth seen a year earlier.
The report lists rental costs as well as occupancy costs, the latter of which includes service charges and property taxes in addition to annual rent. Occupancy costs, which serve as the metric for ranking overall office rent prices, are converted from Euros to US dollars at a rate of (1.35/1). Cushman & Wakefield's report lists original rankings in Euros.
So, what are the world's most expensive places to rent office space? Click ahead to find out!
By Paul Toscano
Posted 25 Feb 2010
Annual Occupancy Cost: $891/sq meter
Annual Rent Cost: $84.24/sq ft
Generally considered one of the most stable office rental markets in Europe, Switzerland experienced a decline of only 3% through 2009, with Geneva maintaining stable prices throughout the year. The most expensive location, Zurich, saw a 6% decline in prices, as corporations focused on consolidation and relocation, according to Cushman & Wakefield.
Annual Occupancy Cost: $900/sq meter
Annual Rent Cost: $82.49/sq ft
Milan experienced a 9% decline in prices for office space in 2009, but remains one of the most expensive corporate centers in the world. Milan also kept its spot as the most expensive in Italy, despite experiencing a steeper decline compared to Rome (-6%), which benefited from demand bolstered by public spending.
Annual Occupancy Cost: $1,032/sq meter
Annual Rent Cost: $93.14/sq ft
Paris remains France's most expensive rental city despite being the only area to see a year-over-year decline through 2009, slipping 10%, according to Cushman & Wakefield. Places like Lyon, Marseilles and Paris La Defense all saw their prices remain steady, with no year-over-year change. This was a result of prices experiencing less-dramatic declines than were first expected and a positive outlook going into 2010.
Annual Occupancy Cost: $1,036/sq meter
Annual Rent Cost: $76.51/sq ft
Cushman & Wakefield found that the first half of 2009 was the most "turbulent" for Russian office rents, while prices stabilized in the second half of the year despite a "fundamentally weak" market, as the country expects low activity and building projects reaching completion in 2010.
Annual Occupancy Cost: $1,061/sq meter
Annual Rent Cost: $104.69/sq ft
(Numbers represent Midtown Manhattan)
The report found that corporate rental levels across the country slid as occupier demand slowed and supply levels increased. However, in places like Washington DC, growing demand from the public sector helped bolster demand, according to Cushman & Wakefield. Despite a 4% drop in prices in Midtown Manhattan (and a 23% drop Downtown), New York jumped to 6th most expensive from the 8th spot in 2009.
Annual Occupancy Cost: $1,092/sq meter
Annual Rent Cost: $95.08/sq ft
Citing the slowdown during the global recession, the report notes that most companies operating in India either postponed or cancelled plans for expansion, causing a drop in corporate demand. Rental values in the country as a whole dropped by around 20%, with Mumbai experiencing a 25% decline in prices.
Annual Occupancy Cost: $1,213/sq meter
Annual Rent Cost: $115.69/sq ft
Dubai is experiencing an oversupply of office space, according to Cushman & Wakefield, and as a result of this falling demand, rental levels slid 35% year over year. Dubai's neighbor, Abu Dhabi, also saw demand fall along with prices, although to a lesser degree of 7% year over year.
Annual Occupancy Cost: $1,629/sq meter
Annual Rent Cost: $142/sq ft
The report notes that the Hong Kong office market has remained active, despite a 35% annual decline in prices for "Grade A" space. This demand was fueled by companies in the financial sector, who were looking to consolidate their operations to less expensive locations, which caused increased activity in Hong Kong's Central and Kowloon East sub-markets.
Annual Occupancy Cost: $1,647/sq meter
Annual Rent Cost: $119.40/sq ft
(Numbers represent London's West End)
In the UK, the first half of 2009 saw weaker occupier demand and an increased availability of sub-let opportunities due to declining rents. However, Cushman & Wakefield's report found that demand stabilized in certain areas of Central London, with rents rising in the fourth quarter. It is expected that prices for premium space will experience a "bounce" due to limited space for development.
Annual Occupancy Cost: $1,945/sq meter
Annual Rent Cost: $163.90/sq ft
Businesses that are located in prime rental spots in Tokyo pay the world's highest premiums for this luxury. With a 21% decline in rental prices, many cost-minded corporations focused on renegotiating their leases in order to reduce their operating costs. The report has also found that cost constraints continue to drive occupier demand, along with landlord incentive packages which offer things like increases in lease length.