London's West End has unseated Hong Kong as the world's most expensive office market after a 14 per cent rise in costs this year, according to a leading property agent.
Consultant CBRE's league table of total occupancy costs puts the West End, suffering an acute shortage of space as well as recovering demand from financial players in the traditional homes of the hedge funds, at $259.36 (£159.20) per square foot.
This is ahead of the Asian powerhouses that dominate the rest of the world's top five – Hong Kong's Central district, Beijing's Finance Street and central district and Hong Kong's West Kowloon. CBRE's occupancy cost measure also includes business rates, which are high in London, and service charges, which inflate the total bill.
But there have been 14 deals struck in the West End above the £100 per square foot mark this year. The biggest was Singaporean sovereign wealth fund Temasek, which planted its flag in London in dramatic style for a new European headquarters in St James's. The reported rent of £130 per square foot was the highest in the West End since before the credit crunch in 2007.
Emma Crawford, CBRE's head of West End & Midtown leasing, said: "The headline rents in the West End office market relate to the sub-10,000 sq ft transactions in the core market of Mayfair and St. James's. The financial occupiers, which traditionally pay these rents, are becoming increasingly active as the market recovers."
She added: "Sentiment has significantly improved over the past 12 months and the market looks much stronger. Next year is a really exciting time. We have gone through a difficult period and I think we are on the cusp of real change. I would expect London to still be on top next year."
London's City market is also in the top 10 locations. Globally, overall occupancy costs rose 2.2 per cent in the year to September, up from 1.4 per cent the year before. The stellar performance of the West End comes despite Europe and the Middle East seeing the slowest overall increase in growth, up just 0.4 per cent compared with 4.6 per cent in the Americas and 3.2 per cent in Asia Pacific.
CBRE's global head of research Raymond Torto said: "The growth of occupancy costs for prime office space in the past year underscores that even in a slowly recovering economy, demand for the best space in the best locations continues to be strong."
Palma de Mallorca and Valencia in Spain were the only two office property markets globally that posted a double-digit fall in occupancy costs over the past 12 months as recession drove down rental prices.