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NYC maintains priciest US office space.

NYC maintains priciest US office space

A recent survey of office rents and vacancy rates conducted by Colliers International Property Consultants, identifies Tokyo as the reigning market leader in expensive real estate at $216 per square feet. Tokyo also boasting the lowest vacancy rate at .5 percent. In the United States, New York City has the costliest office space at $37 per square feet, while the lowest vacancy rate in this country is 7 percent in Louisville.

The survey also revealed that depressed markets have not reached their lowest points, and that the supply of office space has peaked at a time when demand is at its lowest in a decade, particularly in the United States, U.K and Australia. The survey was conducted in 70 cities worldwide.

The most expensive city for renting office space in the United States is New York City, at $37 per square foot. Seattle remains strong, Houston and Denver show a definite upward trend and Midwestern cities like Chicago, Cincinnati and Cleveland remain stable.

Following New York City, the most expensive U. S. office markets are Washington, D.C. ($34 per square foot), Los Angeles ($29 per square foot), Chicago ($28 per square foot) and San Francisco ($26 per square foot). These office markets are comparable to Taipei, Taiwan; Vancouver, Canada; Perth, Australia and Bangkok, Thailand, respectively. Vacancy rates are lowest in Akron, Ohio (8 percent) and comparable on a global scale to Sydney, Australia and highest in Memphis, Tenn. at almost 26 percent, and most closely related to Brisbane, Australia at 29 percent.

Colliers identified rent extremes from $216 per square feet in Tokyo, to lows of $12 per square feet in U.S. cities such as Memphis and Columbia. Vacancy rates swing from .5 percent in Tokyo, Japan to 33 percent in Auckland, New Zealand. According to Colliers, the two extremes document the severe imbalances of supply and demand in commercial real estate markets.

Worldwide Imbalances

At a time when most of the world is embracing free market mechanisms, the survey indicates the imbalances that can occur under these conditions. Stewart Forbes, president of Colliers International, asserts that the real estate industry is going through the painful adjustment of globalization. He said, "Obviously, there are numerous factors determining the differences in property values. But it's hard to believe that a financial services company that could operate in several cities puts twice the value on Tokyo than on London, or six times the value on Tokyo than on New York, for example."

He continued, "Value is in what someone is willing to pay. However, as demand diminishes, determining real value becomes more difficult because there transactions and a widening gap between what a buyer or lessee is willing or can afford to pay and what a seller or lessor is willing to accept."

Real estate decisions that used to be made in the context of a local market are beginning to be made on a global basis. This creates more opportunities and in effect, increases the supply of space and thereby intensifies the problems in markets that are already over-supplied.

It is difficult to say when world demand will absorb the existing supply, but one can say that a trend towards globalization will reduce the differentials that currently exist between major financial capitals, according to Colliers International.

The Colliers survey also reveals the dormant state of the real estate industry worldwide. Forbes said, "With few exceptions such as Tokyo, Frankfurt, and Kuala Lumpur, the tenant's dream is a landlord's nightmare. There are fewer transactions, deals take longer to close and value has become increasingly difficult to determine. The worldwide office market has yet to hit rock bottom."

Status Quo in Tokyo

Vacancy rates in Tokyo are at a 15-year low with vacancies in the central district below 5 percent. Unlike other cities offering free rent, buyouts and other incentives, Tokyo provides no concessions. In fact, tenants are required to make non-interest bearing deposits equal to 18 to 24 months of rent. At the other extreme are high vacancy markets in North America and Australia, offering tenant inducements and 40 percent discounts.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Real Estate Weekly
Date:Aug 21, 1991
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