When it comes to renting top quality office space, there is no more expensive place to do it than the West End of London, at least that’s according to the latest figures on the subject from the property advisory firm Cushman & Wakefield (C&W).
An associated report suggests that a distinct shortage of quality offices to rent in the West End helped push asking prices up by as much as 2 per cent in the London district last year. That increase was apparently enough to see the West End’s asking prices surpass those being asked for in Hong Kong’s central business district, which has long been one of the world’s most costly office space locations.
“As a truly global city, London’s appeal continues unabated. In conjunction with a scarcity of good quality stock, prime rents have increased over the year,” said Digby Flower, Cushman & Wakefield’s head of London markets. “Equally importantly we expect rents to grow further as we get into recovery mode,” he added.
London’s surge to the top spot in C&W’s latest run-down pushed Hong Kong into second position but the steepest climb up the rankings was managed by the Brazilian city of Rio de Janeiro, which went from 8th to 3rd. According to the numbers, the average asking price for office space in the world’s major cities when taken collectively increased by three percent in 2012.
Speaking quite broadly about office space markets around the world in response to his firm’s findings, C&W’s president and chief executive Glenn Rufrano said: “Safe havens or gateway cities such as London, Hong Kong and New York continue to command high rents despite uncertain economic conditions, as they remain key markets in which to do business; while burgeoning population growth has led to rising occupancy costs in emerging markets in South America and Asia.”
Editor’s notes: Research done by international commercial real estate brokerage, JLL, in the first quarter of 2023 analysed the locations that demand the highest rents in 2022.
It was found that offices in the Central District in Hong Kong achieved the highest rents in 2022 at the equivalent of £209 per square foot per year. In second place was Midtown in New York City achieving the equivalent of £177 per square foot. Third place in 2022 was London’s West End district having achieved £147 per square foot.
The fourth most expensive office location in 2022 was Finance Street in Beijing where the highest rent was £135 per square foot, and the fifth was Silicon Valley where office rents peaked at £120 per square foot.
It should be noted that London’s West End district still holds the record for the most expensive office rent when a private family office signed a lease at the Mercury Group-owned 30 Berkeley Square in 2020. The tenant agreed to pay £277.50 per square foot per year in the deal.
This deal meant that the rent was 30 per cent more than the previous record deal where fashion investor and father of Formula 1 racing driver, Lance Stroll, Lawrence Stroll, paid £190 per square foot for offices in St James’s.
The continued upwards push of rental levels has been created by continued demand for premium office space particularly by businesses in the banking and financial services sectors.
Premium quality offices are rented for various reasons, however, post-pandemic there is increased pressure to rent the best office space possible to encourage employees back to the office and to help recruit new employees who may have been used to operating within a hybrid working model.
As the climate change agenda has gathered momentum in the early 2020s, there is also increased demand for office space in buildings with green credentials from the likes of LEED, BREEAM and NABERS.
Offices that achieve these tend to be new developments and built-in popular CBD locations and therefore demand higher rents.
There has also been a reduction in the amount of available space due to the slowdown of existing developments due to lockdowns during the pandemic, and a slowdown in the start of new developments due to increased building material costs due to the Ruso-Ukrainian war and supply chain issues. And a lack of confidence in commencing with speculative office developments because of general uncertainty about global economic conditions.
The reduction in supply puts upwards pressure on office rental levels.
The same research also analysed the most affordable office space locations in the world and found Cape Town to be the cheapest city in the world to rent office space with its highest rent in 2022 being just £12 per square foot per year.
Durban and Johannesburg were joint second with prime rental levels at £14 per square foot.
Joint 3rd most affordable rents were Hyderabad and Rio de Janeiro where premium office rents attracted £14.50 per square foot.