World’s Most Expensive Office Markets Struggle Amidst COVID
GLOBAL – The commercial property markets of cities with pricey office properties prior to the COVID-19 pandemic such as New York, San Francisco, and London are still in a dismal state, reported MarketWatch on Friday morning (12 November, SGT).
Based on Q3 2021 data from Real Capital Analytics (RCA), commercial real estate prices in cities across the globe have increased overall since the onset of the virus outbreak, but it paints a bleak picture for London and many central business districts (CBD) in the United States.
According to RCA’s Commercial Property Price Indices (CPPI) composite index, healthy demand for industrial and logistics properties helped push commercial real estate prices by 7.3 percent across major global cities, especially Los Angeles and Melbourne, during the third quarter on an annual basis. The CPPI composite index – which tracks office, industrial, and retail properties – is transaction-based to account for repeat deals.
However, the commercial property markets of the the City of London as well as key CBDs in New York City, Chicago, and San Francisco are still struggling almost 2 years since the start of the pandemic, particularly when comparing real estate prices in the CBDs with that of their broader metro areas.
For instance, in 7 out of 17 markets analysed by RCA, commercial property prices in CBDs were lower than prior to the pandemic in Q4 2019.
In particular, prices in the CBDs of San Francisco, City of London, London West End, Manhattan, Chicago, Sydney, Los Angeles West, and Hong Kong have contracted between -1 percent and -19 percent.
In comparison, Singapore, Nordic Countries, Germany, and South Korea’s Seoul were the top performing CBDs in terms of price growth, as rates increased by over 15 percent to nearly 40 percent from the last quarter of 2019.
But in the 4 places where commercial property prices have increased – Singapore, Nordic Countries, Germany, and Seoul – they still lagged in gains as compared to their wider metropolitan areas, partly because due to ongoing prevalence of working from home (WFH) in the suburbs, plus the higher concentrations of office and retail properties in major city centres.
Furthermore, RCA pointed out that London and other markets that witnessed negative price growth since Q4 2019 were “some of the most expensive office markets in the world” in terms of occupancy costs before COVID started.