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Copyright © 2000, MCB UP Limited
Global market rents
Global market rents
Keywords: Market report, Rental value, Global
London's West End is the second most expensive office market in the world, with total occupancy costs for the top prime office space of £82 per sq.ft – according to the bi-annual Global Market Rents research by CB Hillier-Parker Global Research and Consulting issued February 2000.
Tokyo's Inner Central district is the world's most expensive (£91.28), Tokyo Outer Central is third (£81.14) and London's City fourth (£65) (Table XVII).
Frankfurt now features amongst the 15 most expensive – it has risen from 17th six months ago to 10th currently. Office demand in Frankfurt has been running at a high level throughout 1999, as the European Central Bank has consolidated its position there, and supply of good quality, well-located office space has tightened sharply. The vacancy rate in Frankfurt has now fallen to below 5 per cent, from over 7 per cent just 12 months ago.
Table XVII. Global market rents: most expensive to least expensive (total occupation cost in £ sterling)
The survey monitors and ranks office occupation costs in 136 cities around the world:
Since office space is defined in different ways, and in multiple currencies around the globe, CB Hillier-Parker's Global Market Rents calculates the £ sterling cost of renting an actual square foot of office space, including all costs of occupancy.
The survey performs a twofold purpose: as an indicator of rental growth for property investors as well as relative occupation costs for corporations planning multinational expansion.
Nick Axford, Head of Research at CB Hillier-Parker, comments:
Tokyo and London have consistently outpaced other world markets in the last few years in terms of annual occupation costs. They remain the only markets to command occupancy costs above the £80 per square foot per annum mark. Economic expansion continues to make its way around the world and we have seen occupancy costs in downtown and key suburban markets increase in many cities as a result of very strong regional economies.
The Central London office market availability rate is now at its lowest level for a decade and, with development activity remaining subdued during the year, 1999 take-up was significantly less than 1998. Prospects for 2000 are positive with development starts expected to increase. However, as current restricted supply continues, upward pressure is likely to be exerted on rental levels.
Robin Blacklock, Business Space Agency Surveyor in CB Hillier-Parker's Edinburgh office, comments:
Strong demand for Grade A office space is currently outstripping supply in Edinburgh's city centre. Only 40,000 sq.ft is available immediately – four schemes are due for completion at the end of the year but at least half of the space is already pre-let. We expect headline rents to rise by as much as 15-20 per cent during the course of this year; headline rents are currently £23.50 and could be as high as £28.
Ian Steele, Senior Surveyor in CB Hillier-Parker's Manchester office, comments:
The Manchester office market has seen a good start to the year with a couple of notable transactions, for example, Watson Wyatt taking c. 16,000 sq.ft at Norfolk House. There are currently a number of large unsatisfied requirements, with BDO Stoy Heywood, Royal & SunAlliance, BT and Norwich Union all looking for space.
There is not much new stock presently available but once Spinning Fields is up and running it will expand the core area. It is likely to have a similar impact on central Manchester to that which the Great Bridgewater development had three years ago, which saw the relocation of a lot of the large professional practices.
Keith Aitken, Director of CB Hillier-Parker's Glasgow office, comments:
Glasgow's occupational market is improving rapidly with an excellent 1999 and a good start to 2000. New developments are under way and will offer approximately 330,000 sq.ft from June.
John Batsford, Director of CB Hillier-Parker's Birmingham office, comments:
Birmingham, the UK's second city, has seen a notable expansion in the legal and financial services sectors. Over the last two years, there has been a significant shortage of speculatively built category A accommodation. There is still pressure for upward movements in occupational costs. Birmingham's position as 13th in the league of Global Market Rents reflects its status within the UK market.
Europe, Middle East and Africa: strong signs. In fact, the pattern in London has been reflected to a greater or lesser extent across most of Europe. Prime rental levels increased on average by 8.6 per cent across the region in 1999 and rose an average 3.8 per cent since Global Market Rents' last survey in July 1999. Over the past 12 months, prime office rents have risen by over 40 per cent in Barcelona, and over 30 per cent in Dublin and Frankfurt. Milan, Madrid, Birmingham and the West End of London have also seen strong growth. Construction of new office space is up in some markets but pre-leasing activity is strong. Only Istanbul and the Eastern European markets of Warsaw, Prague, Budapest and Moscow actually saw rents fall during 1999. Turkey was severely affected by the recent earthquakes, whilst the former communist bloc markets are still to an extent finding an equilibrium.
Bill Ashton, Associate Director at CB Hillier-Parker, comments:
The EMEA region as a whole is currently seeing strong property market growth. Positive economic forecasts for Europe for the next 18-24 months suggest that most markets will remain strong over this period, although new construction is likely to increase. The performance of the Euro over this period could also have an impact, as this could contribute to the setting of interest rate levels.
USA. In global terms, the Global Market Rents survey indicates that office occupancy costs in the USA and Canada are still relatively inexpensive. Midtown Manhattan remained the most expensive North American market at $56.14 per square foot per annum and this placed it 12th among world markets.
The second most expensive North American market in terms of total occupancy cost was San Francisco, where costs in the city's CBD averaged $48.51 per square foot per annum. Other North American markets in the Top 50 were Boston (22nd; $46.83); Washington, DC (29th; $41.99 per square foot per annum); New York Downtown (33rd; $39.86); Chicago (38th; $34.38); Suburban Boston (40th; $34.41); Seattle (42nd; $33.77) and Suburban San Jose/Silicon Valley (47th; $32.08).
Bill Rothe, Senior Executive Managing Director, CB Richard Ellis Global Research & Consulting, says:
The current US economic expansion has now entered the record books as the longest on record at 107 months and it is no surprise that occupancy costs for a wide range of office tenants have grown steadily on the back of this boom.
A snapshot of most major and many smaller markets in North America shows continued expansion of the business sector resulting in higher occupancy rates and rising rents. It's a great time to be a landlord.
Latin America: holds the recovery. Political uncertainty throughout the region and pending elections in many countries held investors back and this caused very little movement up or down in Latin American markets.
Look for a pick-up in economic growth to get under way this year as political worries subside and individual economies begin to move.
According to Liza Him, Director of Research at CB Richard Ellis for Latin America:
Overall, office markets remained fairly stable last year and while there is some hope that oil-producing countries such as Venezuela, Ecuador and Colombia will see a shot in the arm from rising prices, the outlook is for relative economic stability and this should bode well for office space with excess inventory slowly being filled as the year goes on.
Asia: markets up down under. An influx of foreign capital to the tune of about £600 million pumped life into the Australian property markets making Sydney one of the best performers in the region for commercial office investment. Rental levels throughout the rest of the region have continued to decline with only six out of 24 markets stabilized or witnessing rental growth. However, CB Hillier-Parker believes that rents in most markets are reaching bottom and may level out by the end of the year.
Tim Kirkus, Director of Research at CB Richard Ellis for Asia Pacific region, says that, despite Tokyo's position as the world's costliest office market, the most robust markets in the Asia Pacific region over the last six months were found in Australia with Sydney commanding the most attention.
Strong leasing activity in Sydney has allowed the market to stage a dramatic turnaround to the point where concerns over vacancies have completely disappeared.
Kirkus contrasts the Australian markets with Hong Kong, where absorption of new office space in 1999 fell well short of the 3.3 million square feet that came online and pushed vacancies up to 14 per cent.