Elsewhere: Office Prices Soar in London’s Skyscrapers

London's West End submarket boasts the world's priciest office real estate, based on a first-quarter ranking of 50 global markets surveyed by real-estate brokerage firm CB Richard Ellis. The West End, also home to many of the city's theaters and Leicester Square, offers low-lying Victorian buildings that have become coveted addresses for media firms and hedge-fund managers.

A number of taller buildings are on tap in London, including Land Securities' proposed 45-story tower at 20 Fenchurch St., dubbed 'the walkie-talkie.'

The cost of occupying those offices -- including rent, taxes and service costs -- was estimated at $185.60 a square foot annually, according to CB Richard Ellis calculations. The West End topped No. 2 Tokyo's Inner Central submarket, with an estimated cost of $130.05 a square foot.

The City of London, the financial district that includes the 40-story tower often called the "the gherkin" because of its suggestive rocket-ship shape, was ranked third at $127.49 a square foot. More skyscrapers are on tap that will add significant height to the skyline, including the proposed 60-story Bishopsgate Tower, which is being developed by the German capital-investment firm known as Difa.

Meanwhile, the City's appeal to financial firms remains strong. J.P. Morgan Chase & Co. is in the early stages of identifying space for equity and fixed-income trading floors that would require some 150,000 square feet. A J.P. Morgan spokesman says the new space will replace several existing trading floors, but the firm will remain in multiple buildings.

How much higher can London office rents go? Some market watchers say relief for tenants may be on the way as developers ratchet up construction plans. But others note that London's cachet as one of the world's most venerable financial capitals -- and a location that allows companies to do business with the U.S. and Asia in the same day -- remains strong despite the sticker shock.

"It's a bit like tasting whiskey for the first time," Matthew Purser, managing director in the London office of Studley Ltd., a real-estate brokerage company that represents tenants, writes in an email. "You know it's a strong flavor, but it's still an acquired taste."

The potential for higher rents and the large sums of institutional money chasing real estate world-wide also have helped drive a record volume of office property sales. Some ?15.4 billion ($28.1 billion) in office transactions was completed last year in the central London area, according to real-estate services firm Jones Lang LaSalle. The top prices fetched for offices in the second quarter rose to ?2,000 a square foot in London's West End and ?1,200 in the City.

The average price in midtown Manhattan was $650 a square foot through June 1, though some properties have fetched about $1,000 a square foot, according to Dan Fasulo, director of market analysis at Real Capital Analytics Inc., a real-estate research firm in New York.

Some areas of London are less expensive, such as the Docklands, which includes Canary Wharf, or the suburbs. CB Richard Ellis estimates prime annual rents for suburban high-end buildings are between ?25 and ?30 a square foot, compared with ?48 in the City and ?85 in the West End.

The Greater London area, home to about 7.5 million people, saw employment increase about 0.9% in June 2005 from the year earlier, just above the 0.8% growth for the United Kingdom, and economics forecaster Cambridge Econometrics predicts Greater London employment growth will have jumped 1.1% this month from a year earlier.

Developers are expected to deliver about 12 million square feet of new office space from 2006 through 2008. That is about 6% of the just over 200 million square feet of office space in London as of the first quarter, according to CB Richard Ellis.

Mike Hussey, managing director of the London portfolio for Land Securities, says the company has about two million square feet of office space under development or just completed in London. But he says Land Securities, one of the U.K.'s largest property firms, is wary of the market and will insist on preleasing space before proceeding on more projects.

Mr. Hussey says no decision has been made on the timing of a 45-story financial-district tower in the planning stage -- dubbed "the walkie-talkie" by some because its curved design is reminiscent of earlier-era mobile phones. Says Mr. Hussey, "Demand may well increase, but because there's so many more developments, we're worried."