Highest rental price over 250 USD/m2
Savills recently released data on the Savills Prime Office Cost Index for the first quarter of 2023 – a comprehensive report on office rental prices in cities around the world (in USD terms). According to this report, in general, globally, rental prices were recorded at a stable level in the first quarter of 2023. The average growth in prime office rental costs globally only recorded an increase of about 1.1%.
Explaining this increase, Savills said that tenants are increasingly focusing on investing in office design and construction. Furthermore, the cost of office design and completion is also increasing due to inflationary pressures affecting material and labor costs and disruptions in the global supply chain.
Top world premium office markets based on cost (Photo: Savills)
Looking at the US markets, the report shows that the trend remains similar to previous years, with rents remaining stable in Q1/2023. This is attributed to most landlords maintaining rents to attract and retain tenants, even in the current inflationary environment. Office fit-out costs increased due to increased material and labor costs. In addition, businesses considering office options in suburban areas also partly affected the average market vacancy rate.
In the EMEA region (Europe, Middle East and Africa), office costs also increased by an average of 3% quarter-on-quarter and 9.7% year-on-year. Amsterdam (Netherlands) was the market that recorded the highest increase, at 18% quarter-on-quarter.
Markets that also saw rental growth included Dubai (United Arab Emirates), Paris (France), Berlin (Germany) and Frankfurt (Germany). Across the region, annual gross rents (including taxes and service charges) increased by 2.1% as occupiers sought new and well-developed projects, driving up rents for quality offices.
In particular, according to this report, London's West End is the area leading the list of markets with the highest office rental prices in the world, with the average rental price of high-end offices reaching 253.13 USD/m2/month. West End is a large area located at the western end of London and north of the Thames River, in which the area concentrates many tourist attractions, shops, businesses, large government buildings of the city and entertainment venues.
Asia holds 5 spots in the world's top 10 most expensive rents
According to Savills' report, markets in Asia show a diverse picture in rental price fluctuations, although there is little fluctuation in the first quarter of 2023.
While Hong Kong, Shanghai (China), Kuala Lumpur (Malaysia) and Ho Chi Minh City (Vietnam) all recorded price decreases, other markets such as Seoul (South Korea) and Sydney (Australia) have seen growth. The cost of renting prime office space in Asia recorded a mere 1.2% increase compared to the same period last year, lower than the 9.7% in the EMEA region, which is more affected by inflation.
Notably, five of the world’s 10 most expensive cities for prime office rent are in Asia, making the continent the most expensive for global companies looking for office space. Asian markets present a diverse picture of rent volatility.
Hong Kong has lost its position as the world's most expensive prime office space.
According to Ms. Christina Sigliano, Director of Tenant Management for Europe, Middle East and Africa, Savills, the market has recorded a trend of businesses, especially technology businesses, evaluating and restructuring office space to better suit the budget and business situation of the company due to global economic fluctuations. With the wave of staff cuts and gradual changes in working methods, businesses tend to return large premises, reduce the scale or sublease the rented office space.
“However, the reality is that high-end office space remains in high demand in many key markets. With rising pressure from inflation and limited supply of Grade A, rents for high-end office space in most markets globally are likely to increase in the coming period. Furthermore, high-end space in many markets has limited supply, so businesses looking to change premises should start considering options at least 18 months before the end of their current lease,” Ms. Christina added.
In addition, businesses are now demanding higher quality buildings that meet green environmental certifications and ESG standards. Meanwhile, the number of projects that meet the needs of businesses is still limited globally. In the Hanoi market, green certification is increasingly important to the office market as tenants are willing to pay higher rents for buildings with green certifications.
According to Ms. Hoang Nguyet Minh, Senior Director, Commercial Leasing Department, Savills Hanoi, “Green certifications have now become a market practice with recorded rental price differences. Outdated office projects will need to be refurbished to meet the needs of tenants.”
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