"The rates reflect rent plus municipality tax, service charge and value-added tax," said Michael Dunn, chairman of the real estate consulting firm Michael Dunn and Company.

He explained that industry observers had queried the figures in previous years, because the going office rent Downtown - the capital's prime commercial district - is about $250 per square meter annually.

Dunn said: "the office market is Downtown; it is the only really important office location in the country." He attributed the drop in the rankings to lack of growth in the office market. "The office sector is not as strong as the retail sector," Dunn said.

Indeed, even though a recent survey conducted by Solidere indicated that office space Downtown witnessed a 24 percent growth in occupancy rates between December 2002 and June 2003, 40 percent - or 15,000 square meters of office space Downtown - remains vacant.

Dunn acknowledged that one reason the office market was weak was because the country has failed to attract significant numbers of foreign companies. "They should turn Downtown into an enterprise zone," he said.

Lebanon was one of four countries in the region included in the report. The three others were Israel, the UAE and Turkey, all of which ranked considerably lower at 34th, 39th and 40th respectively. One square meter of prime office space in Tel Aviv was valued at $317 annually, whereas in Dubai and Istanbul it was $218 and $217 respectively.

London retained its position as the world's most expensive city for office space. One square meter of prime office space in London's Mayfair district was put at $1,668 per year. This is 55 percent more than Paris' $1,071, which overtook Tokyo to become the second most expensive location for office space.

The report noted that out of the world's 202 top office locations monitored in 45 countries, rents fell in local currency terms by an average of 3 percent - significantly less than the 7 percent fall recorded the year before.