Savills analysis of prime office costs in global markets around the world has shown that occupier demand for the best space has generally maintained rents, and that London’s West End has seen the ‘all-in’ cost to an occupier of office space rise above Hong Kong and top the table
While costs in the West End have fallen slightly since Q3 2021, the net all-in annual cost of office space at the start of 2022 is $267.84 per sq ft, says Savills in its Prime Office Costs report (SPOC), above Hong Kong’s $255.96 per sq ft. The international real estate advisor says that this is partly due to supply outstripping demand in Hong Kong, which for years held the title of most expensive office market for occupiers, but where rents have now fallen and concessions risen as landlords seek to attract tenants.
According to Savills, cities in the United States broadly saw costs remain flat or increase over 2021, with the region as a whole increasing 2% year-on-year. However, there was no increase in net effective costs from Q3 2021 as landlords used concessions to tempt occupiers. Most markets in EMEA saw declining total costs averaging -5% for the year in dollar-terms, with currency fluctuations accounting for the majority of the fall, as in local currencies the region saw growth of 1.7%. Extended and repeated lockdowns across Europe played a role in declining dollar costs as workers stayed working from home and occupiers reassessed their space needs. Meanwhile, Asia Pacific posted a 2% annual decline for the next effective cost to occupiers. However, cities have seen much more varied changes in costs, ranging from 5% in Shanghai to -11% in Delhi. Rapid economic growth across the region has encouraged occupiers to consider taking space in key cities.
Jeremy Bates, head of EMEA occupational markets at Savills, comments: “Regardless of region, there has been a very clear flight to quality as the global war for talent, present before Covid-19 but perhaps now accentuated, has pushed occupiers to look for the highest quality spaces to draw workers back, with maximum lease flexibility to allow them to pivot space to meet the demands of a rapidly changing environment. Prime and super prime offices accounted for the majority of spaces transacted in the past year, and this is likely to continue. For occupiers looking for the best space, supply in the uppermost markets is generally very limited, and they need to start their search very early and commit to space promptly to lock in their first choice.”
Read Savills Prime Office Costs report for Q4 2021 in full here
Notes to Editor:
Methodology: The Savills Prime Office Cost (SPOC) Index presents a quarterly snapshot of occupancy costs for prime office space throughout the world, as provided by our expert, local tenant representation professionals and researchers. The adjusted annual all-in occupancy cost represents real-time transaction terms for 20,000 sq ft (2,000 sq m) of usable space based on a basket of top five most expensive properties to calculate ultra-prime average. The North American markets use a sample of very high rent threshold buildings (leasing occurring at the highest end of market). All costs are reported in an annual, standardised format of USD per sq ft of usable space to account for variations in currency, reflect local payment protocols, and adjust for measurement practices across the globe. We have also factored in the credit value to the tenant generated from abated rent and the cost associated with fitting out the premises in order to provide an ’all in‘ total occupancy cost in USD per usable square foot. The fit-out costs were gathered from local Savills teams assuming the leasing scenario described above, plus the following: i) 30% cellularisation with the remainder of space open plan, ii) construction and cabling only (no furniture or professional fees).