A new report from CBRE, says the rising cost of leasing prime office space accelerated across the globe due to continued economic growth, job gains and limited availability of prime space in certain markets. Of the 122 markets tracked by CBRE, 85 registered cost increases.
CBRE’s annual Global Prime Office Occupancy Costs Report found that average costs for leasing the best office space in each market’s best location increased by 3.6 percent globally in that 12-month period, outpacing the year-earlier gain of 2.4 percent.
According to CBRE, the 10 most expensive markets were the same markets as last year, though several have changed positions within the top category. Hong Kong Central ($322 per square feet per year) and London’s West End ($222.70) retained the top two spots, with the former widening the gap between itself and the field. The biggest gainer within the top 10 was Midtown Manhattan ($196.89) in New York City, which climbed to the fourth most expensive market this year from the sixth last year as companies sought prime space in Midtown corridors and the new Hudson Yards mixed-use development.
CBRE defines Prime Office Occupancy Costs as the cost – rent, local taxes and service charges – to occupy the highest quality office space in each market’s highest-quality location. Prime real estate costs can be a gauge of a market’s high end – and sometimes of the broader market.
“The race to attract and retain talent by securing office environments of the highest quality lost no momentum despite slower economies in some regions and unpredictable trade discussions,” said Julie, CBRE Americas Head of Occupier Research. “In fact, the cost of occupying prime office space rose at a steeper rate as supply remained constrained in some coveted markets. Demand is notably strong from banking, finance, technology and coworking companies.”
Fifteen of the 122 markets analysed by CBRE posted double-digit percentage increases in prime office occupancy costs in the first quarter in comparison to a year earlier. Many share traits including a central location, modern infrastructure and transit options, prime social amenities, and a relative lack of available prime space.
In Nigeria office markets, the rentals of grade A office spaces have remained stable. While average rents for new commercial developments still hovers between $600-$700 per square metre.
The Chairman, Royal Institution of Chartered Surveyors (RICS), Nigeria chapter, Mr. Gbenga Ismail told The Guardian that “office rental has not increased in the last five years. The projected rent five years ago was $1000/$1,200 per square metre. Today it is averaging $650/$700 peak rate so it has come down. It is still relatively expensive.
“Compared to Africa it is very high. However, when compared to New York London, it is still reasonable. It is not in the top 10 highest world office index.
“One factor why it is expensive is because of the investor yield. Investors expect a minimum yield and have set this target. Therefore rent has been pushed up to reflect this. Cost of building new offices remains very expensive and energy cost is a huge deterent, therefore return on investment will need to be high to reflect this.
“Currently, the economic situation has caused demand to drop which invariably has affected rental prices and put a downward pressure on owners. However because of the factors mentioned above the rents cannot go below a certain threshold,” Ismail said.
The former Chairman of Nigerian Institution of Estate Surveyors and Valuers, Lagos branch, Pastor Stephen Jagun argued, “Our rates are among the highest because of the attended costs. Our service charge is also very high because of the cost of providing those essential services. These costs are increasing by the day with revenue not matching.”