London office space world's costliest

London is still the world's most expensive place to rent offices, but growth in Asia has pushed Hong Kong and Tokyo above Paris into second and third place, say agents Cushman & Wakefield.

Rents in Hong Kong jumped 75 per cent, resulting in total annual office costs of $2147 a square meter.

But that's still 27 per cent less than the cost of space in London's West End, which rose 4.1 per cent to $2927, Cushman & Wakefield said in its annual Office Space Across the World report.

"The Hong Kong office market has been on the upswing for more than two years," said James Fisher, managing director of Cushman & Wakefield's Hong Kong office.

"Some companies located in the central business district will have to more than double their occupancy costs when they renew their leases in 2006."

Demand for offices in major cities across the world is being driven by growth in financial-services companies including banks and insurers.

The shortage of prime space with large floors in many cities is also driving rents higher.

Cushman & Wakefield expects rents to start rising in London's West End, which includes districts such as Mayfair and St James's, this year as demand from hedge funds and private equity firms isn't matched by new developments coming on to the market.

"The West End remains the world's most exclusive business address and is the location of choice principally among the cash-rich financial-services sector," said Guy Taylor, head of West End offices at the brokerage's London unit. "For many firms a Mayfair or St James address is considered de rigueur."

Paris slipped to fourth in the report, even as the cost of space rose faster than in London. It gained 6.8 per cent to $1805 square meter.

New York is the world's seventh most expensive city to do business, up from 11th a year ago. The move by investment banks out of lower Manhattan into the midtown district resulted in a 16 per cent increase in office costs to $1045 a square metre.

Cushman & Wakefield said globally, occupancy costs rose 4.3 per cent last year, faster than economic growth of 3.3 per cent, and more than three times as much as the 1.2 per cent rise in costs in 2004.

- BLOOMBERG