ENERGY DEPENDENT CITIES SEE PRIME OFFICE
- New Energy Sources Supporting Real Estate Demand -
- Average Rental Growth of 25.2% Year-On-Year for Energy Centric Cities -
- Caracas, Jakarta and Baku See Greatest Pick-Up in Office Rents In 2014 -
- Luanda Fourth Most Expensive Prime Office Rent -
London, 04 November 2014 – Average prime office rental growth is up by a quarter, at 25.2%, for energy dependent cities - a city which is driven by the energy sector (oil and gas) for economic and real estate activity - this year. This far outstrips the average of 4.5% for other established office locations1 according to the latest research from global property advisor CBRE, which covers 332 cities.
The respective growth, and real acceleration for energy dependent cities, is part of a global shift towards energy demand moving away from OECD (Organisation for Economic Co-operation and Development) to non-OECD countries3. Emerging markets, particularly China, India and parts of Africa and the Middle East, are leading such demand.
In addition, global energy consumption has risen by 2.3% this year, with 80% of the increase attributed to non-OECD countries. China, for example, is expected to become the world’s largest oil importer and India is set to become the largest coal importer.
Such acceleration of energy production in non-OECD countries has led to steep increases in demand for good quality office space. Cities like Caracas, Jakarta and Baku are among the locations experiencing increased demand from energy companies which is forcing rental values up due to a lack of available good quality office stock. Caracas, Venezuela a city heavily invested in the energy sector, has seen prime office rents increase by 280% y-o-y, although this is also influenced by limited office development, high inflation and uncertain political conditions; Jakarta, Indonesia has increased by 42% while Baku, the energy focused capital of Azerbaijan, has picked up by 17.6%.
Luanda, the capital of Angola, is the second biggest oil producer in sub-Saharan Africa with energy sector occupiers accounting for a substantial portion of the market. Although rents have eased slightly over the past year, low supply and ongoing demand mean that the prime rent is 8 per sq ft pa, ranks it fourth of the cities surveyed.
Michael Armstrong, Director, EMEA Global Corporate Services, at CBRE, commented:
“Energy markets continue to evolve at a rapid pace and the landscape is expected to undergo fundamental and lasting changes over the next 20 years. Energy supply is coming from a greater range of locations with such diversification effecting companies’ operational decisions and causing substantial impact on office markets. This is particularly the case in some emerging markets where there is limited office stock and high demand for space from energy sector companies.
“A year ago, on average energy dependent cities were up by 10.6% y-o-y compared to established business centres at 2.9%. The jump in growth to 25% signifies the upward rental trend of energy dependent markets.”
Iain Landsman, Associate Director, at CBRE, added:
“In established markets, energy companies are increasingly using commercial property to attract and retain the best talent in a highly competitive sector. This has led to a number of companies consolidating or relocating to new bespoke headquarters.”
1 Established business centre: a major office market where the occupier base is represented by multiple sectors
2 Cities surveyed for the purposes of this report: Aberdeen, Abu Dhabi, Accra, Almaty , Baku, Beijing, Buenos Aires, Calgary, Caracas, Denver, Dubai, Edmonton, Ho Chi Minh City, Hong Kong, Houston, Jakarta, Lagos, London, Luanda, Manila, Mexico City, Moscow, Paris, Perth, Pittsburgh, Port Harcourt, Rio de Janeiro, Sao Paulo, Shanghai, Singapore, Stavanger, Takoradi, UK South East
3 OECD/Non-OECD: an international economic organisation of 34 developed countries, founded in 1961, to stimulate economic progress and world trade. Non-OECD means the countries that are not part of the OECD organisation