LONDON (WEST END) AGAIN WORLD’S MOST EXPENSIVE OFFICE MARKET; TOKYO’S INNER CENTRAL MARKET RANKS SECOND

CB Richard Ellis Group, Inc. Report Finds Global Rents Continue Decline

London’s West End is again the world’s most expensive office market, according to CB Richard Ellis (CBRE) Global Research and Consulting’s semi-annual Global Office Rents survey. Tokyo’s Inner Central has slipped to second place, followed by that city’s Outer Central market. Hong Kong’s Central Business District (CBD) and Moscow are fourth and fifth respectively in the CBRE report, which tracks office occupancy costs in nearly 180 cities around the globe.


Office markets worldwide are experiencing declines in prime office occupancy costs. The year-over-year change in prime office occupancy costs of the 179 markets monitored revealed an average drop of 7.7% worldwide over the 12-month period ending September 30, 2009 (in local currency and on an un-weighted average basis). The majority of markets – 131 markets in total – experienced a year-over-year decline including nearly 50 which saw rents tumble by double-digit percentage-points.

Many of the world’s bellwether financial centers are at the top of the list of fastest changing markets, including Hong Kong Central CBD(-40.7%) and New York, Midtown(-29.7%) along with emerging markets such as Ho Chi Minh City(-45.4%) and Abu Dhabi(-38.6%). Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels.

“While there are signs that commercial real estate values are stabilizing in some markets in Asia and parts of London, underlying property fundamentals are still weak,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”However the office market may be on the cusp of moving from intensive care to the stabilization stage - the first step to getting back to good health.”

Forty-one markets experienced positive growth. Aberdeen, Scotland and Rio de Janeiro, Brazil both grew by more than 10% as not all markets have been as affected by the decline in global demand and demand for office space has proven resilient in some areas due to the local market dynamics.

Office occupancy costs measured in U.S. dollars are affected by changes in the dollar’s value versus the respective local currency. Hence, office occupancy costs when converted into U.S. dollars are driven by both the local market dynamics of supply and demand, as well as currency changes.
Asia-Pacific

Tokyo (Inner Central) was Asia’s most expensive market with an occupancy cost of THB 5,130 per square meter per month (US$172 per square foot per annum). while that city’s Outer Circle market was second with occupancy costs of THB 4,157 per square meter per month (US$139 square foot per annum). Hong Kong (CBD) follows with occupancy costs of THB 4,113 per square meter per month (US$138 square foot per annum). Mumbai and New Delhi were the other two Asia-Pacific markets in the world’s top 10 most expensive cities roster. Bangkok, one of the cheapest market, was ranked at 151st out of 179 markets surveyed with occupancy costs of THB 694 per square meter per month (US$23 square foot per annum), followed by Jakarta ranked at 177th with the lowest occupancy costs in Asia at THB 481 per square meter per month (US$16 square foot per annum)

For the Asia Pacific region, the office markets that experienced the largest decreases include Singapore (-53.4%), Ho Chi Minh City (-45.4%), as well Hong Kong which declined over 30% in the past year. The Asia-Pacific region had 17 cities with double-digit declines in office occupancy costs.
Europe

London’s West End was the world’s most expensive office market at THB 5,525 per square meter per month (US$185 square foot per annum). Moscow was second in Europe with occupancy costs at THB 3,932 per square meter per month (US$132 square foot per annum). Dubai, Paris and the City of London all were in the top ten most expensive markets.

Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels. Other markets in Europe that are experiencing the largest decreases include Moscow, Oslo, Warsaw and Dublin. The EMEA region had 17 cities with double-digit declines in office occupancy costs.
Americas

Two cities in Brazil -- Rio de Janeiro and São Paolo -- have supplanted New York’s Midtown as the most expensive office location in the Americas. Rio de Janeiro’s occupancy costs of THB 2,600 per square meter per month (US$87 square foot per annum), was good for twelfth place on the global list, while São Paulo came in at 16th globally with occupancy averaging THB 2,451 per square meter per month (US$82 square foot per annum). New York’s Midtown’s market has dropped to third in the Americas and 24th globally with occupancy costs of THB 2,062 per square meter per month (US$69 square foot per annum).

Boston’s CBD led the Americas, with a decline of 33.9% year-over-year, followed by New York’s Downtown and Midtown markets. Fifteen markets in North America posted double-digit declines. Meanwhile, Latin America held up stronger than the rest of the world, with only six cities registering a decline, including a 6.3% decrease in Buenos Aires, Argentina.

Moody's says newly listed Chinese property developers face challenges

Moody's Investors Service says that eight major Chinese property developers succeeded in substantially enhancing their capital bases and liquidity positions during September-December


2009 with a total raising of HK$38.5 billion (US$4.9 billion) through IPOs on the Hong Kong Stock Exchange, but these improvements to their financial fundamentals could prove short lived.

"Debt leverage is likely to rise again and exceed the levels seen at the time of the IPOs as the sector continues with its ingrained strategy of pursuing high growth and bigger scale," says Peter Choy, a Moody's VP and Senior Credit Officer.

"It was common for the debt to total capitalization of those developers already rated by Moody's to increase -- some by 10-15% -- in the 2 years after their IPOs, and such a similar trend is therefore expected for most of the recently listed developers," says Choy.

"Most usually, funds are spent on the expansion of land banks and larger scale developments, and experience indicates that Chinese developers generally come over budget in their land acquisitions," says Choy.

Choy was speaking on the release of a special comment -- authored by him and Kaven Tsang, a Moody's Assistant Vice President and Analyst -- on the implications of recent IPOs by Chinese property developers.

"Once their listings are complete, developers will experience -- in line with past examples -- strong shareholder pressure to grow," says Choy.

"As a result, the newly listed companies are likely to see debt leverage increase over the next 2 years."

Even though the Chinese real estate market in 2010 is expected to be stable, conditions will not be strong enough to support the very aggressive targets set by the newly listed companies, and their reliance on strong pre-sales to reduce their borrowing needs may prove misplaced, the report says.

In addition, Chinese banks will likely strengthen their capital bases and reduce loan growth in 2010 to help reinforce the stability of the banking system; and, as such, availability of mortgage finance to property purchasers will not be as strong as in 2009, the report says.