London’s West End remains the world’s most expensive location for office space at $29,000USD per workstation which is now nearly a third more expensive than second-placed New York, according to DTZ’s annual Global Office Thermometer.
The 18th annual edition of the report, which analyses 133 cities, shows that across the globe international occupiers are generally benefitting from significant drops in office costs. The annual USD cost of a workstation fell 3.9% globally on average in 2014. An appreciating US dollar, weak economic growth in Europe, and significant new supply in emerging markets combined to erode costs across many global markets. In addition, occupiers are using space more intensively in some cities, thereby reducing the average cost of a workstation. The report further reveals that workstation costs, measured in local currencies, showed only a modest rise overall.
Asia Pacific saw the fastest decline in USD workstation occupancy costs with an 8.3% decrease. Europe wasn’t far behind with an average decline of 7.8%. Workstation occupancy costs in North America and North Asia increased by 4.8% and 2.5%, respectively.
On a city level Moscow saw the sharpest fall in USD workstation occupancy costs in 2014, falling by a third on a USD basis. Other Eastern European cities including Bucharest (25%), Bratislava (23%) and Prague (21%) also posted sharp falls.
In contrast to this global trend, London’s West End saw workstation costs rise sharply. At $29,000 per workstation, it is 11 times more expensive than the cheapest European city Lisbon. Dublin registered the fastest increase in workstation occupancy costs in Europe with a rise of 13% in 2014 with London just behind on 11%, although Dublin remains significantly cheaper than London.
Some of the sharpest increases were in Middle East & Africa markets. Abu Dhabi saw the fastest increase in occupancy costs of any city in our global ranking in 2014, increasing by 36% on a USD basis. Other Middle East markets also saw some of the fastest increases notably Jeddah (20%) and Riyadh (11%). Similarly, occupancy costs in Lagos increased 8%.
Dublin posted the fastest increase (13%) in Europe, echoing the turnaround in the Irish economy. London (West End) witnessed the second fastest increase (12%).
Richard Yorke, Head of Global Occupier Research, and report author, said: “the appreciation of the US dollar has had a significant impact on the relative affordability of global cities. Nevertheless, our analysis of workstation costs in local currency terms also demonstrates the dampening impact of economic weakness in Europe. Similarly, the glut of new supply in some emerging markets is eroding workstation occupancy costs. In addition occupiers are using space more intensively, especially in expensive cities such as New York.”
James Maddock, Head of Global Occupier Services in EMEA, added: “London’s West End continues to power ahead as the most expensive city on the planet to have a desk and there are no signs that this will slow in the near future. The lure of London remains strong for occupiers who see the value of having space in one of the world’s major financial and business centres. It will be interesting to see the debate around the proposed EU referendum and what this means for London’s position as a destination of choice for many of the world’s major corporations.”
Within the UK’s regional cities, Edinburgh remains the most expensive although is 3.5 times cheaper than London. Costs per workstation have accelerated by 8% year on year as rising city centre rents begin to take effect.
DTZ Edinburgh’s Director in Agency, Development and Occupier Services, Mark Jones comments: “The rise compared to other UK regional cities is a direct indication that the supply of new and Grade A space, particularly within the city centre, is critically low. Cost rises in Scotland’s capital over the next 12 months will be substantially above the global average of 0.5%. Occupiers will need to budget appropriately, even in light of increasing workplace efficiency.”
He adds: “This should also act as a call that developers need to commit to producing new office stock; without it Edinburgh’s economic prosperity could be hampered as businesses look to expand in locations where there is availability.”
The report concludes that international occupiers will continue to benefit from ebbing cost pressures in numerous office markets. Overall global workstation occupancy costs are expected to increase on average by just 0.5% per year over the next two years, on a local currency basis. Occupiers in North America will enjoy an annual 1% cut in workstation occupancy costs in 2015 and 2016. Conversely, Asia Pacific is expected to post the strongest average growth of 1.7%. Greater China, however, costs are likely to remain unchanged. Similarly, EMEA cost increases are set to average just 0.8%.