Dubai leads the office space market in the Middle East and is ranked 23rd globally according to CBRE Global Research and Consulting’s semi-annual Global Prime Office Occupancy Costs survey. The Prime office occupational cost in Dubai (for instance DIFC) is US$92.56 per sq. ft. per annum as of Q1 2014.
Nick Maclean, Managing Director, CBRE Middle East, said, “Dubai continues to be the destination of choice for global investors looking to enter the region. Overall market fundamentals are arguably stronger now than during 2008, with solid occupier demand, a smaller development pipeline, improved regulations and a healthier global economy.”
“Over the period of the next 12 months, demand for prime office space will continue to increase as companies upgrade their existing setup or expand their offerings in light of the recent positive activity. The lack of high quality offices in the CBD area and the increased demand from corporates has resulted in rentals to slowly rise in prime locations. The rentals are likely to increase further as landlords seek to achieve premiums on remaining space as occupancy levels near capacity. CBRE expects demand to remain high of office spaces, throughout the remaining of 2014, in key locations such as Downtown, DIFC and Tecom.”
According to the CBRE research, London’s West End remained the world’s highest-priced office market, but Asia continued to dominate the world’s most expensive office locations, accounting for three of the top five markets. The study also found that rents are rising fastest in the Americas, where real estate fundamentals continue to improve significantly. Overall, the U.S. accounted for five of the 10 markets with the fastest growing occupancy costs. These markets were Seattle (Suburban), San Francisco (Downtown), San Francisco (Peninsula), Houston (Suburban) and Houston (Downtown).
London West End’s overall occupancy costs of US$277 per sq. ft. per year topped the “most expensive” list. Hong Kong (Central) followed with total occupancy costs of US$242 per sq. ft. Beijing (Finance Street) (US$194 per sq. ft.), Beijing (Central Business District (CBD)) (US$187 per sq. ft.) and Moscow (US$165 per sq. ft.) rounded out the top five.
Global prime office occupancy costs rose 2.3% year-over-year, led by the Americas (up 3.3%) and Asia Pacific (up 2.9%). Meanwhile, EMEA was essentially flat, edging down 0.1% year-over-year. The regional results are consistent with recent economic trends, in that the American economy has been stronger than EMEA’s over the past year. While Asia Pacific exhibited the highest economic growth of the three regions, it also has a large pipeline of office projects, which is beginning to put downward pressure on costs in key markets.
CBRE tracks occupancy costs for prime office space in 126 markets around the globe.Of the top 50 “most expensive” markets, 21 were in EMEA, 20 were in Asia Pacific and 9 were in the Americas.
Occupancy cost comparisons in U.S. dollars are affected by currency exchange rates. However, the annual percent change in occupancy costs are in local currency and are not influenced by currency changes (except Jakarta, Indonesia where leases are typically written in U.S. dollars, but paid in rupiah, which means the occupancy cost increase is greatly affected by the currency depreciation in Indonesia).
Europe Middle East & Africa (EMEA)
EMEA was home to the world’s most expensive market, with London West End at US$277 per sq. ft. per annum. Development restrictions in the West End keep vacancy rates comparatively very low. The improvement in the U.K. economy has triggered a strong recovery in the demand for space. This demand, along with the shortage of available space, has been putting upward pressure on prime rents throughout 2013 and into 2014.
Other markets from the region in the list’s top 10 are Moscow (US$165 per sq. ft.), London City (US$154 per sq. ft.) and Paris (US$124 per sq. ft.).
Both Palma de Mallorca, Spain, and Lyon, France, posted double-digit decreases in prime occupancy costs, falling 13.0% and 10.8%, respectively, over the past 12 months, a reflection of the effects of the lingering Eurozone crisis.
Richard Holberton, Senior Director, EMEA Research at CBRE, added: “EMEA is an interesting region. It has four of the top ten most expensive office markets, including the world’s most expensive, and two of the top fiver risers. Yet, it also accounts for three of the top five fallers. This shows that the EMEA office market is hugely diverse, reflecting an uneven pace of recovery from the European debt crisis which has hit markets for much of the last 6 years.
“Looking ahead, as economic sentiment improves, demand for prime office space is expected to accelerate which will be compounded by a weak office construction pipeline. This means three things for occupiers, act now to secure leases in prime buildings, strike attractive deals by de-risking pre-lets which might otherwise not be fundable, or snap-up accessible and good quality secondary space at attractive rates as there is a surplus in some markets.”