Tokyo is world’s costliest office market, passes Hong Kong

LONDON: Tokyo replaced Hong Kong as the world’s most expensive office location after rents in the Japanese capital declined at a slower pace, according to broker Cushman & Wakefield Inc.

Rents for prime office buildings in Tokyo fell 21% to us$163.90 (RM557.26) per sq ft last year, the broker said on Feb 23 in an e-mailed report. The cost of leasing offices in Hong Kong, which slipped two places in the rankings to third, dropped by 35% after more tenants moved away from the city centre. London’s West End was the second most expensive district.

“As Japan’s economy is picking up, the Tokyo office market is showing resistance to further decline,” said Hideyuki Shinkai, a Tokyo-based fund manager for Norinchukin Trust & Banking Co. “The stable supply of new space also has been supporting Tokyo’s office market. Compared with the Tokyo market, the Hong Kong office market has been traditionally volatile and it had been rising rapidly.”

The global recession prompted companies to lease less space, causing rents to slump across the main business districts last year, the Cushman & Wakefield said. The last worldwide decline in prime rents happened in 2003, according to the report. Companies also switched to cheaper premises and leased their excess space to other firms, hurting demand.

The Japanese economy expanded at an annual 4.6% pace last quarter as overseas shipments and government stimulus measures sustained the nation’s recovery from its deepest postwar recession.

The biggest declines last year were in the Asia-Pacific region. The largest drop was 53% in Ho Chi Minh City, Vietnam, where many companies shelved expansion plans. Rental levels in Japan sank in the first half of 2009, and the pace of decline eased thereafter, Cushman & Wakefield said.

In North America, prime office rents fell by an average of 8%, with Boston reporting the biggest decrease at 26%, the broker said. They dropped 23% in downtown New York and 25% in London’s West End.

“Rents fell in the majority of markets as the pendulum swung firmly in the occupiers’ favour,” the New York-based broker said in the report. Every corner of the world was affected in 2009, it said.

Global office rents will probably reach their low point this year as companies in some of the recovering economies regain confidence, the broker predicted. Rental growth is already being recorded in some districts, including the City of London and Oslo.

This year “will not be without its challenges and risks, but it will be a year of recovery and cautious optimism for both landlords and occupiers,” Cushman & Wakefield said. – Bloomberg LP