Location, location, location: Are Business Centres in the World’s Most Expensive Cities Thriving?

Published on August 16, 2012 - By Jo Disney - Senior Associate Editor, UK & Europe

Commercial real estate giant CB Richard Ellis recently released a list of the most expensive cities for office space. Focusing on the average cost per square foot for conventional leases, Hong Kong (Central) came out on top as the most expensive office location, followed by London’s West End. Tokyo finished in third position.

Our question is this: Can business centres thrive in the world’s most expensive cities?

We decided to put the question to Alan Pepper, Chief Executive of Avanta, located in London’s West End (#2 on the list), and Irina Semirova of Moscow’s Millennium House (#5 on the list).

According to Avanta’s Alan Pepper the answer is yes.

“Clients remain keen to operate in the West End and there has certainly been an increase in demand over the last year or so, with smaller businesses expanding,” said Alan. “This has resulted in us being over 90% occupied for the last year.”

Even during the recession and subsequent Euro crisis, he says that demand in the West End has remained “robust”. The reason, as you may guess, is the many benefits of being associated with a West End address as well as its accessibility. This is undoubtedly the reason West End addresses are also very popular as virtual office locations.

“The key relates to its relative ease of access for staff from most areas around London and therefore the ease of access to significant client customers,” he said. And from Avanta’s perspective, he said that the smaller lot sizes of buildings “reduces the risks of operation”, and the proximity of other centres “makes operation and management easier.”

Of course operating in one of the world’s most expensive locations is not without its challenges. “On the cost side, it is not just rent but also property taxes which jumped significantly in 2010,” he said. “Cost of space is a factor and we have the same issues as conventional tenants, as we are leasing buildings. However we can provide landlords with flexibility and help them to maximise revenue.”

According to Alan, a number of “major corporates” have taken space both with Avanta and with their competitors over the past year, including some household names like Twitter and BP. Serviced offices may not be replacing the conventional lease, but it certainly seems to be offering a popular alternative.

Irina Semirova of Millennium House, located in Moscow, manages both serviced and conventional space. Interestingly CBRE revealed that Moscow’s conventional occupier costs grew by over 19%, which it attributed to a strong tenant demand where vacancy is low and new development is limited.

“What makes Moscow an attractive city for business? Profit, of course,” said Irina. The cost of living is reasonable, and there are lucrative expansion possibilities. “Russia is a huge market. Clients set up an office in Moscow, look around and often expand further, to the likes of St. Petersburg.”

According to Irina, 90% of her clients represent foreign companies. Since Russia is not heavily affected by the Euro crisis, many overseas companies are setting up offices there. Another key reason for Moscow’s thriving business centre market is the attractiveness of short-term agreements.

“Under Russian legislation you have to register all long-term lease agreements in the State Registration chamber,” she said. “It takes a lot of time, requires a lot of paperwork and the registration process lasts six weeks. Short-term contracts of 11 months or less don’t need to be registered.

“In business centres like ours and Regus it’s easy come, easy go. That’s why new companies rent small offices in business centres first. Also, it’s hard to find a small conventional space in Moscow,” she said, explaining that most buildings only offer conventional space with large floor plates.

Irina manages both serviced and conventional space in Moscow which means clients can expand from one to the other – keeping business neatly within the walls of Millennium House. And for Avanta, it’s a question of keeping up with demand. “We have recently opened a centre in Cavendish Square and are currently fitting-out another in Hanover Square,” said Alan. “We have a number of new projects in the West End which we would hope to bring to the market over the next six months.”

So it seems, the allure of these “most expensive” cities certainly offers plenty of business for centres willing to take on the challenges.

Is your business centre based in one of CBRE’s Top 50 most expensive officing locations? What do you feel are the main challenges and merits of the location? Join the conversation by leaving your comments below.