London’s West End has usurped Hong Kong’s crown for the priciest offices in the world, says the latest report by real estate services firm, Cushman & Wakefield.

The Office Space Across the World 2013 report saw London leapfrog Hong Kong’s Central Business District, assuming the top position for the first time since 2008.

Hong Kong

According to Cushman & Wakefield, lower economic growth affected Asia as prime rents rose by only 3 per cent over the year.  Despite a clear deceleration in prime rents in both Hong Kong and Tokyo, the two cities ranked second and fifth, respectively, in the world’s most expensive office locations, highlighting their importance as global business centers.

“In the last 12 months, we saw office demand in the Greater Central area of Hong Kong experience a slowdown, resulting in a sizable rental decline. Demand fell because of the restructuring among banking and financial institutions which led to office space reduction,” said John Siu, executive director of Cushman & Wakefield, Hong Kong.

The firm expects rents will still experience some downward pressure in 2013 as a result of slightly elevated availability, but believes they will begin to recover, starting in early 2014, he said.

China

Beijing, which Cushman and Wakefield said has experienced two years of “massive prime rental growth”, drops one place to seventh in the global ranking as rents remained stable over the last 12 months. Surplus space has provided a number of alternatives in an increasingly tenant-led market in the city, the firm said.

Randall Hall, executive managing director of Cushman & Wakefield Greater China, said, the three key Greater China office markets – Hong Kong, Beijing and Shanghai - are still the preferred locations for domestic and multinational companies, and rents have stayed high due to healthy demand.

“In 2013, economic growth is anticipated to accelerate, particularly in China, but we expect occupiers to stay cautious and focus on rationalising the space they occupy in these prime locations,” Hall added.

Asia

Connaught Place in New Delhi, India, also posted a considerable rise - prime rents increased by 25 per cent in the last 12 months. In South East Asia, prime rents rose by 6 per cent across the Philippines, caused by demand from the business process outsourcing sector. Meanwhile Jakarta’s CBD in Indonesia experienced a notable rental rise in 2012 of 46 per cent, according to the report. 

Global office market

Globally, the office market witnessed prime rents rise by 3 per cent in 2012, but this was largely driven by the strong levels of growth in South America, particularly Brazil and Colombia. For example, the Zona Sul area of Rio de Janeiro powered from eighth place last year into the top three most expensive office locations in the world as a result of a 43 per cent rental increase compared to 2011.

However, although prime rents expanded on a global basis, many markets suffered under continuing economic uncertainty and this led to increased occupier caution. Cushman & Wakefield expects the trend of companies proactively trying to reduce office occupancy costs to continue as the overall global economic outlook remains unsure.