Colliers ABR releases worldwide markets report.

If New Yorkers think the Big Apple is expensive, they need a global reality check. In Moscow, once the capital of Soviet socialism, the cost-of-doing-business is three times more expensive than New York (Midtown). While Moscow is the world's sixth most expensive city, Manhattan ranks 33rd in a just-issued survey of 101 world cities on five continents conducted by Colliers International Property Consultants.

"The shortage of quality office buildings in emerging nations and the rush of companies seeking business opportunities in these markets has led to some astronomical boosts in office rents, a key cost-of-business driver, while rents in New York are down from their peak in the mid-1980s," explains Robert L. Billingsley, executive vice president of Colliers ABR, Inc., the New York metropolitan area partner in Colliers International.

While its city government controls the office market, Moscow's buildings command effective rents of $89.45 per square foot (PSF), versus $27.99 PSF for New York City - Midtown.

Office rents in Tokyo dropped 17 percent in the first half of '95 with a strong yen buoying dollar value, and Bombay is challenging Hong Kong's lead in the "Top 10 Most Expensive Places in the World to Do Business," out of 164 world business districts on five continents (including suburbs) surveyed in Colliers International's "Global Real Estate Review."

In Tokyo, prices sank 60 percent in yen terms for the period June '92 through June '95 and are expected to slide another 5 to 10 percent by June '96.

The twice-yearly Colliers survey compares the costs of doing business as expressed in effective rents, which includes base rent for Class A space (first-class offices in prime locations), operating costs, taxes and landlord concessions. The survey of 101 cities and 63 suburbs also records quoted rents which exclude such concessions.

Bombay and Ho Chi Minh on the Rise

Bombay's business costs have soared, as the Indian city commands $123.82 PSF, a rise of $20 PSF in just six months, making it second only to world leader Hong Kong, $136.36 PSF.

Colliers does not expect India's cancelling of the $3 billion Enron electric power generator this past Summer to affect the overall business climate or rents. India's capital, New Delhi, joins Bombay on the Colliers' Top 10 for the first time at No. 10, with $73.20 PSF rentals, edging out Guanghzou, China. Also falling out of the Colliers Top 10 is No. 13 Mexico City ($54.99), which has experienced lower rents following the late '94 devaluation.

In Vietnam, the new economic liberalization policy drew 558 foreign company representatives by year end 1994, and the first new offices in Hanoi are expected to be ready during the second half of 1995. The hottest market is Ho Chi Minh City, which grabbed the No. 12 spot on the Colliers index, following a $7 PSF rise since early '95 to $55.78 PSF.

London Only Western City in Top Ten

Rounding out the Colliers' 10 Most Expensive list were Osaka, Japan, No. 9, $73.38 PSF and London, $88.25 PSF, the lone Western city on the list at No.7. Osaka benefitted from the late 1994 earthquake in Kobe, which destroyed 22 of its neighboring city's major office buildings, with resulting business relocations and construction activity bolstering its economy.

But construction activity in China has its leading markets, Beijing, Shanghai and Guangzhou, until recently among the world's tightest markets, facing a glut. The change from early '95 is stunning. In six months, Beijing and Shanghai went from having no available space (zero vacancy) to 3 percent, while Guangzhou's vacancy rate has doubled to 5 percent.

But that's only the tip of the iceberg.

In first-half '95 two million square feet of office space was added in Beijing, with an additional 7.6 million square feet due for delivery over the next five years. Another 9 million square feet of office space will be completed this year in Guangzhou, and Shanghai is adding eight times its present space by 1997. Businesses in China will benefit from a wider selection of modern accommodations, while rents soften and demands for upfront rent deposits will diminish.

The Fall 1995 Colliers' "Global Real Estate Review," provides information on rents, vacancies, absorption, market conditions and trends.

The Bargain Bottom Ten

The world's most affordable business markets continue to be found in Canada, Australia and New Zealand.

Perth, Australia heads the bottom 10 downtown list, with downtown office space a bargain at $8.81 PSF. Suburban Winnipeg is a thrifty $8.25 PSF, followed by Edmonton's $8.84 PSF. Completing the bottom ten downtown bargains are: Edmonton, $9.55 PSF; Calgary, $9.69 PSF; Adelaide, Australia, $10.07 PSF; Christchurch, New Zealand, $10.81 PSF; Wellington, $11.19 PSF; Melbourne, $ 11.25 PSF; Guadalajara, Mexico, $11.52 PSF; Auckland, NZ, $11.63 PSF; and Houston, $12.43 PSF.

Other suburban bargains are: Milan, $11.77 PSF; Toronto, $11.98 PSF; Ottawa, $12.13 PSF, and America's cheapest, Houston, $12.35 and Hartford, $13.05. This is followed by Vancouver, $13.58 PSF; Barcelona, $14.48 PSF; and Columbia, SC, $14.55 PSF.

D.C. Most Expensive in U.S

Athens, Greece is more expensive than any major U.S. city. Washington D.C. has slipped to 27th in the Colliers world index, but it is the most costly place to do business in the U. S. at $33.50 PSF, followed by No. 32 Boston, $29.80 PSF.

No. 33, New York - Midtown, is followed by No. 39 San Francisco, $25.91 PSF and what is fastest becoming the nation's hottest market, No. 41 Atlanta, $24.80 PSF, the fifth most expensive U.S. city.

"Hotlanta" experienced 450,000 square feet in downtown absorption from January to June '95, aided by pre-Olympic demand and the continuing relocation of regional centers. As a result, such concessions as free rent and tenant improvements have been greatly reduced. During 1995, job creation is expected to reach as high as 90,000. In the Atlanta suburbs, companies are paying the region's highest non-CBD rents, $23.30 PSF, and leasing activity has been high, with 400,000 square feet absorbed in first-half '95.

If things are hot in Georgia, they're bigger in Texas. Dallas' star is rising with intense leasing activity, as evidenced by 500,000 square feet of absorption in downtown Big "D," and another one million square feet absorbed in its suburbs. At $16.08 PSF downtown, No. 75 Dallas is a world-beater of a bargain, with vacancy rates of 19.25 percent. It is clearly a tenant's market, although vacancy rates dropped 2 percent in the CBD and 3 percent in the suburbs, and rents are rising.

Chicago's Vital Market Signs

Colliers predicts that the Chicago office market will regain its "healthy" status over the next three to four years, and the signs of a resurgence are already evident in 1995 to date. Downtown vacancy rates declined to 13.6 percent and rents rose since early this year from $20.87 to $21.55 PSF. Leasing activity also has been very strong. Absorption reached 539,000 square feet downtown and 878,000 square feet in the suburbs for the year's first half.

For the rest of the midwest region, significant rent increases and good absorption could be found in Cincinnati, Milwaukee and Minneapolis.

Investors Return to Orange County

Investors are once again purchasing Class A office buildings in Orange County, CA, following the county's recent brush with bankruptcy. While vacancy rates are declining, they are still high at 16.65 percent for downtown and 17.39 percent in suburban Irvine markets. Irvine prime buildings command $19.25 PSF, while its $14.75 PSF is the best 'burbs bargain in the West. Investment activity in Los Angeles and San Diego is up since early '95. A San Diego building which 18 months ago attracted only one or two investors can now attract a small crowd of interested parties.

In Los Angeles, bank repossessions have declined over the last six months and investment activity is characterized as strong. L.A.'s vacancy rate of 25 percent is the highest in the nation.

Following L.A. closely in availabilities is Hartford, CT, with a 24% vacancy rate.

Top CBDs in California are: San Francisco, $25.51 PSF; San Diego, $23.30 PSF; San lose, $22.70 PSF; and the capital, Sacramento, $20.46. Elsewhere in the west, Seattle office rents average $16.81 PSF.

Of the 38 American downtown markets surveyed, 64 percent report rising rents, with vacancies declining in 58 percent of the cities surveyed. In the 39 suburban markets surveyed, 59 percent report rising rents, while 73 percent report declining vacancies. The average U.S. office rent is $19.85 PSF.

The U. S. national average for vacancies is 12.06%, a drop of nearly a full point since the start of 1995. Suburban vacancies average 11.25 percent, down .3 percent in the same period.

Vienna Gateway for Eastern Europe 

The Austrian capital city is enjoying the spoils from companies seeking a westernized base from which to explore Eastern European markets. Tenants wary of standards and practices in less established markets have begun to take advantage of the city's historically low rents, $27.64 PSF. This phenomenon is reflected in the 107,000 square feet of absorption in first half '95. This demand, coupled with economic recovery through 1995, is expected to further increases in Vienna leasing costs through 1996.

Elsewhere in Europe, London and Paris remain the most expensive business cities, following newcomer Moscow. Vacancies have declined to 8 percent in London since early '95. In Paris, which dropped out of the Colliers Top 10 to No. 14 for the first time, rents are still a relatively expensive $52.34 PSF, a $2 decline. Suburban Paris offers rents of $33.54 PSF.