Outlook bright as office rents ease

Dubai: Abu Dhabi recorded an increase in business competitiveness as office rents fell 23.7 per cent in the first quarter compared to a year ago, but a bottoming is in sight, according to the CB Richard Ellis Group's semi-annual Global Office Rents survey.

Dubai is among the 10 most expensive office markets in the world with rents at $108.92 (Dh399) per square foot per annum, placing Dubai at No 9, while Abu Dhabi is placed at 19 with $72.71 per square foot per annum. The study also showed a global decline in rent by 4.6 per cent from a year ago.

Overall, the Europe, Middle East and Africa (EMEA) region had an annual decline of 6.2 per cent, led by Moscow (-26.5 per cent), Dublin (-24.6 per cent) and Abu Dhabi (-23.7 per cent). The region as a whole experienced 44 out of 57 markets with office occupancy costs falling.

London's West End remains the world's most expensive office market with an occupancy cost of 1,457.59 euros per square metre per annum. Hong Kong's Central Business District (CBD) has risen to second place, pushing Tokyo's Inner Central to third place.

Mumbai is now in fourth position on the list while Moscow remains fifth in the CBRE rankings, which track occupancy costs for prime office space in 176 cities.

Office occupancy costs measured in US dollars are affected by changes in currency exchange rates. Hence, office occupancy costs when converted into US dollars are driven by both the local market dynamics of supply and demand as well as currency changes.

"Currency fluctuations play a big role in market rankings for the top 10 office costs, but the ‘most expensive club' still includes the usual suspects — London, Hong Kong and Tokyo," said Dr Raymond Torto, CBRE's Global Chief Economist.

The report also found that on a year-over-year basis, global occupancy costs are searching for a bottom, with the markets monitored revealing a collective drop of 4.6 per cent worldwide over the 12-month period ending March 31, 2010. Larger markets experienced a slightly greater decline of 6.4 per cent.

"The majority of markets (133) experienced a decline, with 33 of these markets registering double-digit percentage-point drops in office occupancy costs. As many as 53 markets experienced annual increases in occupancy costs, generally smaller markets affected by quality shifts in key market assets.

The EMEA region continues to have the most markets in the top 50 list with 29 markets.

"While economic data reflects improvements year-over-year, the commercial real estate market lags the economy, and our occupancy cost survey still shows falling costs," said Dr Torto.

"On a quarter-over-quarter basis, rental data in these markets is generally starting to show a bottoming, and in some locations, such as London, even an uptick."

The Latin American market — led by Brazil — was the only region to show an increase year over year in occupancy costs.

Annual percentage change calculations are based upon occupancy costs in local currencies and measurement and not influenced by currency exchange rates.

Figures: Region-wise winners

Europe, Middle East & Africa
EMEA continues to have the most markets on the top 50 list with 29 markets. London's West End is still the world's most expensive market with an occupancy cost of $182.94 per square foot. Other markets in the region that top the list are Moscow (occupancy cost of $125.10 per square foot), Paris ($113.23), London City ($110.07) and Dubai ($108.92).

Asia Pacific
Asia Pacific had 13 markets rank in the top 50 most expensive with three of the top five most expensive markets. Hong Kong (Central CBD), with an occupancy cost of $153.20 per square foot followed by Tokyo's Inner Central, with an occupancy cost of $143.99 per square foot. Mumbai, with an occupancy cost of $125.76 per square foot, moved up into the top five global markets largely as a result of the recent appreciation of the rupee.

Americas
North America is led by Midtown New York, which posted an office occupancy cost of $64.51 per square foot. While office occupancy costs in Midtown New York are high for North America, that market ranked just 26th globally.