Office rents rise in key global business centres

Vacancies in Single Digits in all 10 Leading Markets.
London – January 2007 – Prime office rents increased in all 10 major global business centres in 2006, with four posting increases of more than 20%, according to new research from CB Richard Ellis.

The increase in rents reflects tightening office market conditions around the globe. Vacancy rates declined virtually across the board and are currently in single digits in all 10 markets, CBRE reports.

In Europe, Madrid and London experienced the most significant rises. Madrid recorded a 25% increase in prime rent during 2006—the second-highest of all 10 global markets—while London posted a 22% increase. In the West End of London—the most expensive office market in the world—the prime rent rose to Ł97.50 per square foot (€1,558 per sq m per annum), while top rents in Madrid reached €408 per square meter. At year end, vacancies in London and Madrid had fallen to 4.3% and 7.8%, respectively. Paris rents rose by over 9% during the year, with vacancy of just 5.2% by the end of 2006.

In North America, New York registered an 18% jump in asking rent—its largest year-over-year increase since 2000—to an average of $54.62 per sq ft (€446 psm pa), as market-wide vacancy fell 2.0 percentage points to 5.0%. In Washington, D.C. asking rents rose 6% to an average of $48.08 psf (€392 psm pa) at year-end, as vacancy fell slightly to 6.1% from 6.4% at the end of 2005.

Asking rents rose 30% in Hong Kong, the strongest increase of the 10 markets, to an average of HK$591.60 psf (€619 psm pa), as vacancy receded to 3.8% from 4.8% at year-end 2005. Tokyo’s negligible vacancy increased minimally (0.3 points) to 1.4%. Tokyo rents posted the third sharpest rise, jumping 24% to JPY18,971 psf (€1,299 psm pa).

Vacancy dropped sharply in Los Angeles, declining 2.0 percentage points over the past year to 8.7%. Los Angeles’ asking rent increased 9% to $31.44 psf (€256 psm pa). At 8.0% Sydney’s year-end 2006 vacancy dropped 1.6 points and continued to stay in single digits, while rent rose 8% to AUS$629.28 (€367) per square meter.

“Though the demand for quality office space in the global markets has risen steadily in recent years, this is the first time rents have simultaneously increased while vacancies dropped in every major market,” said Steven Dunn, CBRE’s Chief of Global Research Publications. “Continued rent increases and declining vacancies underscore the growth in both global business and the rising need for high-end office space in the corporate sector.”

“Although the European economy is still lagging behind most of the rest of the world, the growth seen in 2006 was sufficient to generate rental increases in many European markets” adds Nick Axford, Head of EMEA Research and Consulting at CBRE. “In part this is due to the low levels of vacancy in the prime locations of many markets, but we are also starting to see the results of recent economic growth feeding through into more widespread increases in office demand. This is particularly the case in the UK and Spain, where relatively strong economic performance is driving rental growth in London and Madrid” Axford concludes.