London’s West End is the world’s most expensive office market for the third consecutive year, retaining its title ahead of runner-up Hong Kong, according to research published today in Cushman & Wakefield’s annual Office Space Across the World global ranking.
Prime rents in London’s West End have risen 4.6% over the year but are still 13% behind the 2007 peak. However, further positive rental growth is anticipated against a backdrop of limited supply and expected development completions in 2015.
Cushman & Wakefield’s head of London markets, George Roberts, said: “With a true global appeal, London continues to attract major international businesses looking to be based there, often using it as a springboard into Europe. As economic conditions in the UK further outperform, there will be heightened demand for London office space in 2015 from across all sectors. With supply heading downwards, further rental growth is expected.”
Global office rents rose 7% in 2014, more than double the circa 3% annual compound increase since 2010. Overall, last year saw foundation cities from around the world reaffirm their position in the global hierarchy at the expense of smaller, peripheral markets.
Challenges remain for occupiers, not just in terms of property fundamentals, but also geopolitical risks which some are viewing with understandable caution. These factors are being leveraged by some occupiers to negotiate more flexible lease terms or lower rents, particularly in locations with oversupply.
In Spain , there has been a rise in income due to increased take up in recent years (first was in Madrid, with growth of 43 % in 2013, and last year in Barcelona, with more than 50%) .
REGIONAL RANKING: EMEA
Cushman & Wakefield’s head of EMEA offices, James Young, said: “A key theme of the European office market is the low level of development delivered over the last two years. Despite a recent uptick in construction activity, the revival is supply-led as occupiers continue to search for quality space that provides the right environment for staff in a highly competitive employment market.”
However, there is some divergence in under-supplied markets such as London – in order to secure space some occupiers are moving sooner than expected to secure the larger, more flexible floorplates they need. As quality availability erodes, secondary space is becoming a more realistic option for some and while rents here have been reasonably static an upward swing is expected over the next 12 months.
REGIONAL RANKING: ASIA PACIFIC
John Siu, managing director of Cushman & Wakefield in Hong Kong, said: “Leasing activity across Asia Pacific continues to strengthen but to a varying degree. With pent-up demand in some of the core locations and service sector growth positive, 2015 is expected to see further rental growth in most of the gateway cities of the region.”
REGIONAL RANKING: THE AMERICAS
Ron Lo Russo, president, New York tri-state region, Cushman & Wakefield, said: “The accelerating US economic recovery is quickly propelling the Manhattan office market beyond equilibrium in favour of landlords, resulting in falls in the amount of quality space available which should lead to solid rental increases in 2015.”
Bogota is the star performer of the Americas in terms of occupancy cost growth (26.2%) and propels the city from 14th position in Cushman & Wakefield's 2013 Americas regional ranking to sixth in 2014.