London has surpassed Hong Kong in having the highest-priced office space in the world, with rents topping $265 per square foot. Fueled by hedge funds driving up rental rates in London's prestigious West End developments, rents increased over $40 per square foot during 2007, according to Princeton, NJ-based NAI Global's 2008 Global Market Report.
Hong Kong's Class-A rents climbed by approximately 25 to 30 percent market-wide, reflecting robust market conditions, but they came in second place, with top rents at $263.20 per square foot. New York City also narrowed the gap, with peak rents of $225 reported for the most expensive space in Midtown Manhattan. With a Class-A vacancy rate of just 5.2 percent in Midtown, $100-plus deals are now commonplace in Class-A buildings.
Jeffrey M. Finn, president and CEO at NAI Global, says, "Image-conscious investment managers are driving up rental rates in Mayfair, where peak rents are almost double the highest office rents in any other part of the city." He adds that "Hong Kong tenants have had to contend with sky-high rental rates for several years now, but, in London, New York City, San Francisco, Moscow, and a few other major cities, the increases registered in 2007 pose a real challenge for companies with expiring leases that were originally signed in much more favorable market conditions."
The most expensive office markets share a number of key characteristics, including strong local/national economies and significant supply constraints, Finn notes. For example, with over 510 million square feet of Rentable Building Area (RBA), New York City is the largest market in the United States, but has a market-wide vacancy rate of just 5.3 percent. Availability of premium quality space in the most desirable submarkets is almost nonexistent. New York's peak rents, found in Midtown Manhattan, are more than double the highest rents reported in any other U.S. market.
Headquartered in Princeton, NJ, NAI Global is one of the world's largest commercial real estate services providers. To learn more, visit (www.naiglobal.com).