Demand for top quality global office space continues to grow
Rents for prime office space across the globe rose by 0.3% and fit out costs by 0.2% in the final quarter of 2024, says Savills, as demand for top quality office space continues to grow in many markets around the world.
According to Savills in its latest quarterly Prime Office Costs report, in the fourth quarter of last year, average net effective costs rose slightly, by 0.1%, continuing a moderate upwards trend of 1.9% over 2024. London (West End), Hong Kong, and New York (Midtown) remain the top three locations in terms of costs of the 35 markets Savills examines.
Savills says that several markets saw significant cost changes last quarter, notably Dubai and Los Angeles, which witnessed a 7% and 5% net effective cost to occupier growth, respectively, supported by strong demand. EMEA saw some cost increases last quarter, with 0.7% growthin net effective costs to occupiers. The 7% increase in Dubai is the largest of any market and the result of significant rental growth driven by constrained supply at the top end of the market combined with a growing number of new entrants seeking premium space.
In Asia Pacific, net effective costs saw a decline of 1% in Q4 2024. China prime offices saw a fall of 2.6% while Sydney and Melbourne, at the other end of the spectrum, saw costs grow by 1.7% and 1.6%, respectively, as a result of reduced landlord incentives in Sydney and rental growth in Melbourne.
North America saw 0.7% net effective cost growth last quarter, matching the pace of growth in EMEA. Los Angeles Century City, in particular, saw strong rental growth, largely due to intense demand for space. In the office market overall – both prime and mainstream, Los Angeles saw the highest reported leasing volumes in any quarter since Q1 2020, a testament to the elevated demand in the market in 2024.
Overall leasing activity increased by 18% in H2 compared to H1 2024, says Savills. In its complementary Market Makers report, which examines the top 10 prime office occupier deals by size in the same 35 cities, the international real estate advisor found that just over half (54%) of the deals examined were either new leases or expansions, reflecting positivity among major occupiers and the resilience of premium office space. Just over a third (33%) of the deals were for space of the same size, while 13% reflected downsizing. Globally, finance overtook tech as the number one industry for H2 2024 deals (figure 2) for both deal numbers and area transacted.
Rick Schuham, CEO of Global Occupier Services at Savills, comments: “Ultra prime offices remain a key strategic asset for many businesses globally and almost all industries saw an increase in square footage transacted in H2 2024 compared to the first half of last year. In 2025, we expect continued rent and leasing volume growth as the net effect cost growth we have seen across the world over the past year is set to continue for the foreseeable future.”
Sarah Brooks, associate director in Savills World Research team, says: “Even with the darkest clouds seemingly behind us, fiscal and economic concerns will likely remain a top concern for businesses globally. Demographic and behavioural trends will also continue to drive activity in the prime office sector, as firms continue to compete for talent. This competition drives both site and city selection for global businesses and will remain a top priority for 2025.”