New Zealand office space among cheapest in world, survey shows

New Zealand's office rents are among the lowest in the world, a survey has revealed.

Cushman & Wakefield Research's Office Space Across the World 2009 ranks New Zealand 46th cheapest out of 57 surveyed countries. London has lost its status as the world's most expensive office location for the first time in nine years, overtaken by Hong Kong and Tokyo.

The cost of occupying prime office space a year in Hong Kong stands at $4235sq m, nearly seven times the $630 annual occupancy cost per sq m for top space in Auckland's CBD. Although rents in Hong Kong fell 4 per cent last year, the much larger 23 per cent fall in London's West End pushed occupancy costs there down to $3409sq m. The cost of space in Tokyo stands at $4007sq m, a fall of 19 per cent last year.

Gerald Rundle, manager of Bayleys Research, says demand for office space in New Zealand has cooled over the past 18 months. "There is a considerable amount of space due for completion in 2009, but beyond this there are few schemes due on-stream," Rundle says. "Developers now require significant tenant pre-commitment before gaining funding and being able to start a project."

Rundle says local office rentals are expected to continue declining this year, in line with international trends.

Cushman & Wakefield says office rents globally rose on average by 3 per cent last year, the lowest growth rate since 2004.

South America was the best-performing region, with rental growth averaging 12 per cent. Western Europe was the poorest performer, with average rental growth of only 1 per cent.

"The impact of the global economic downturn has been felt in all markets, although some have been better placed to withstand declining occupier demand for space," said the report.

"The expansion of financial institutions, particularly hedge funds, has driven up rents in London's most prestigious West End market in recent years but it has now felt the full impact of the credit and banking crisis."

Hong Kong managed to avoid the big falls in rents seen elsewhere, says John Siu, general manager of Cushman & Wakefield Hong Kong.

"This is primarily due to Hong Kong's comparatively low vacancy rates. Many banking and finance occupiers have not yet reached the end of their lease, so are not currently looking to either relocate or downsize.

"There is also a limited supply of new stock coming on to the market. However, there seems little doubt that rents will continue to fall over 2009, perhaps at a faster rate than before."

Malaysia's Kuala Lumpur recorded the highest level of rental growth globally, up more than 50 per cent last year.

China also did well, with rental growth of 12 per cent last year. Richard Middleton, executive managing director of Cushman & Wakefield Greater China, says this was mainly because of strong demand in the first half of last year. "This slowed quickly in the second half as development plans were delayed; however, many have since resumed construction."

Cushman & Wakefield Research says the outlook is for a fall in rents as businesses cut back and space availability rises thanks to consolidation.

"These trends will be evident across the globe but the scale of their impact will vary regionally.

"Asia Pacific, Africa and the Middle East are likely to see recovery in advance of both Europe and North America because the availability of top-grade space is still particularly low.

"Vacancies are most likely to peak in 2010 rather than 2009. On the plus side, many markets remain undersupplied with modern office accommodation and a large number of developments delayed, which should prevent oversupply in many markets."