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Prime Office Markets Growing On Demand, Tight Supply

Occupancy costs in prime office markets worldwide continued to rise this year, largely on robust demand and tight supply, according to a recent report from commercial real estate service firm CBRE Group (CBG).

Looking at 126 prime office markets globally, the report found that costs in the first quarter rose an average 2.3% vs. a year earlier. Some markets, such as Jakarta, Seattle and Kuala Lumpur, saw double-digit gains.

Southeast Asian markets increased "markedly," the report said, "amid stronger economic growth and an increasingly acute shortage of prime space.

In the U.S., occupancy costs soared in tech- and energy-centric markets, CBRE said. Costs in suburban Seattle were up 19.4%, downtown San Francisco 12.5%, and Houston more than 10%.

CBRE expects occupancy costs worldwide to accelerate in the latter part of 2014 as demand increases amid mostly tight supply.

The most expensive office markets remain pretty much the same as before, with London's West End topping the list at $277 per square foot, followed by central Hong Kong at $242 per square foot.

New York, San Francisco and Boston were tops in the U.S., at $121, $108 and $94, respectively.

CBRE noted that several major Asian markets have inched up the rankings each year since the survey began in 2000. "If this secular trend continues, it may not be too long before all the top 10 markets are in Asia," CBRE said.

Global real estate companies such as CBRE and Jones Lang LaSalle (JLL) are likely benefiting from stronger office-market fundamentals.

So are U.S. companies focused on office properties in prime domestic markets. One standout is Boston Properties (BXP), which focuses heavily on New York, Boston, San Francisco and Washington, D.C.

CBRE and Jones Lang LaSalle score high in IBD's Composite Ratings, both with scores of 98 out of a possible 99. Boston Properties is ranked a relatively high 87.