Location close to a major station adds 6.7% ‘proximity premium’ to office rents
For every five minutes a prime office is located closer to a city’s major transport hub, occupiers can expect to pay an average 6.7% more in rent, according to new global analysis from Savills.
As part of its Impacts thought leadership programme, the international real estate advisor performed a regression analysis to assess how distance from a major transit hub affects prime office rents in New York, London and Tokyo. It found that offices in Tokyo demonstrated the highest premium, with every five minutes closer to either Shibuya or Tokyo station adding an average of 13% to office rents. Taking Tokyo Station alone, the effect was even more pronounced, with rents climbing 17% for each five-minute reduction in walking distance.
In London, prime offices within a one-mile radius of Liverpool Street station saw a 4% increase in rent for every five minutes they are closer to the station, and in New York proximity to either Grand Central or Penn station added a 3% rental premium. This mirrors the results of a survey of office developers, investors and occupiers carried out by Savills for Impacts, where 70% of respondents ranked being close to a transport hub as the most important criteria for selecting the site of a prime office. The response was largely consistent across the major global regions, with 74% of survey respondents based in EMEA ranking it first and 73% of those based in APAC, although US respondents ranked it slightly lower at 63%, reflecting American workers’ greater propensity to commute by car.
However, Savills says that local idiosyncrasies mean that a ‘proximity premium’ may not apply universally: in London’s West End, for instance, there is no overt correlation between rents and the distance to key underground stations. According to Savills, this is likely due to certain postcodes, streets, or even individual buildings holding special significance for specific brands and industries, taking precedence for occupiers over their transport links and commanding higher premiums.
Rick Schuham, CEO of Global Occupier Services at Savills, comments: “The office has changed in many ways in the last five years, but some location fundamentals are holding steady. Our research shows that a well-connected location remains a key driver of rental price premiums. But keen local market knowledge can reveal that niche locations hold specific appeal for certain industries, above and beyond convenience to transportation hubs. Overall, companies are looking for the location formula that works best for their business – with price, branding, image, transportation access and appeal to top talent among the primary factors. With a few notable exceptions, the persistent transportation “proximity premium” that has emerged is a clear indication of today’s market preferences in major global cities.”
Sarah Brooks, associate director in Savills World Research, adds: “Alongside location, traditional factors such as sustainability credentials, natural light, building security and floor-to-ceiling height also ranked highly amongst our survey respondents. The former, we know, can also add a rental premium (or a discount), especially in Europe, where investors and markets have high expectations of environmental efficiency. It’s also a factor in Asian Pacific cities, where Australia leads the way.”