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London, Hong Kong Lead Office Market Bounce-Back Across World’s Financial Centers

Los Angeles – February 16, 2010 –London and Hong Kong's office markets are the first from among the four top-ranking international financial centers (IFCs) to bounce back, according to the latest research from the leading commercial property consultant, CB Richard Ellis.

The CB Richard Ellis report – How Did They Fare? A Comparison of Offices Markets in International Financial Centers – examines the impact of the credit crunch and recession on the occupational and investment markets for office property in London, New York, Hong Kong and Tokyo – the four top-ranking international financial centers.

"International Financial Center markets are specialized, share high exposure to financial markets, and are inherently volatile," said Dr. Raymond Torto, CBRE's Global Chief Economist. "However, our report reveals key differences between these four IFCs in terms of the effects of the crisis and the trends that have emerged as signs of recovery have appeared."

Office demand in New York and London was affected more quickly and directly by the global banking crisis than in the two Asian cities. In Hong Kong and Tokyo, it was the ensuing global recession, with collapsing production and trade, which did the most damage to occupier demand. Tokyo's market saw only hesitant signs of recovery over the second half of 2009, while in both London and Manhattan there was a significant pick-up in office demand as financial market conditions improved.

In the New York market investment activity almost ground to a standstill during the course of 2009. In contrast, London's office investment market which was also an early casualty of the credit crunch saw pricing and activity rebound over the second half of 2009, with strong demand from overseas investors. Hong Kong has had an even larger rebound in office values in 2009, almost re-gaining pre-crisis levels.

Key findings from the report include:

  • London, New York, Hong Kong and Tokyo recorded similar proportionate falls in prime office rental levels from peak to trough, but timing and market drivers differed. London's property market responded most rapidly to the onset of the crisis and has been the first to see rents turning back up.
  • Different market experiences reflect differences in the economic structures of the four cities. In Tokyo, financial services are less important, less internationally oriented and have a smaller share of the CBD office market than in the other three cities.
  • New York was acutely affected because of high dependence on securitized debt, leaving investment activity depressed in 2009. Capital values were most severely affected here with a drop of around 55%.
  • Tokyo's office investment market is heavily reliant on domestic investors.

Leasing Market Trends

  • Occupational demand for CBD offices was severely hampered in all four cities. London and New York saw a greater and earlier direct impact from contraction of demand in banking in finance compared with Hong Kong and Tokyo. By Q3 2009, a common trend of rental stabilization was evident.
  • Hedge funds played a big part in changes to top rental levels in Hong Kong, New York and London.

Investment Market Impacts

  • Office investment values at the start of the credit crunch in mid-2008 were at highly elevated levels following a period of strong growth. In New York, London and Tokyo, the high values reflected major yield compression driven in large part by debt-financed investment demand. In contrast, in Hong Kong, average office yields were more stable in the run-up to the crisis and office capital growth was more a function of rapid rental growth.
  • The four cities show contrasts in trends experienced during 2009. In New York, the lack of available financing as well as several factors preventing an expected flood of forced sales, continues to stifle demand for investment stock. Tokyo remains a buyer's market, but with financially sound domestic investors and some domestic lending recently supporting brisker activity compared with earlier in 2009.
  • London and Hong Kong have shown much stronger improvement in investment volumes and values. In London, this was driven largely by overseas investors, enhanced by Sterling's depreciation. Hong Kong has seen a very strong rebound in both sales volumes and prices, underpinned by the relative financial strength of local investors and rising interest from mainland Chinese investors.


  • The recent downturn's origins in the credit crisis meant that development activity was curtailed relatively early by reduced access to financing. This had a dramatic impact on New York and London. The development pipeline for all four markets for 2010-11 is comparatively limited and therefore reduces the risk of excess supply depressing rental levels; conversely prospects for rental recovery are improved.

A copy of the report can be found here.

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services firm (in terms of 2009 revenue). The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. CB Richard Ellis has been named a BusinessWeek 50 "best in class" company for three years in a row. Please visit our Web site at

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