Prime office costs continue to grow around the world, but…
Rents for prime office space rose 0.2% and fit-out costs 0.3% in Q3 2024, taking the year-on-year growth in net effective costs to 3.1%, says Savills.
The international real estate advisor’s latest quarterly Prime Office Costs report, says that average gross prime office rents in major cities around the world have risen 2.4% in the past year (Q3 2023 to Q3 2024) while tenants’ ‘all-in’ net effective costs (rent plus fit-out costs) have risen 3.1%, but the averages hide some significant variations both across and within regions.
In Asia Pacific net effective costs rose 0.3% last quarter, but China prime offices saw a fall of -3.6% while Kuala Lumpur, at the other end of the spectrum, saw costs rise 8.5%. EMEA saw a regional average of a negligible 0.1% increase in net effective costs to occupiers from the previous quarter, with a smaller variation in costs between different cities. North America experienced modest quarterly net effective cost growth of 0.4%, driven by increasing fit-out costs in several markets, Uniquely, Savills says that the region saw small decreases in gross rents from last quarter amounting to a -0.9% decline, driven by performance in several east coast markets. However, on a year-on-year basis, rents are still up by 6% across the continent.
Savills reports that for the first time since the end of the pandemic, increases in office fit-out costs are beginning to slow globally, with year-to-date increases varying between 0.7% and 1.6%, well below the increases seen in 2023 and 2022 (figure 2 – below) .
Rick Schuham, CEO of Global Occupier Services at Savills, comments: “If the slowdown in fit-out costs continues we’re likely to see this being factored into workplace planning by more tenants. Many have been limited recently by uncertainty over how much it may cost to revitalise their current space, or the level of spec they can commit to when taking new offices, and in some cases they’ve had to settle for less than ideal layouts which don’t optimise their employees’ working environment. Cost clarity will enable them to have more confidence to invest long-term in their built environments.”
Sarah Brooks, associate director in Savills World Research team, says: “The final quarter of 2024 is likely to end as the year started: the flight to quality and competition for talent will continue to drive companies to seek prime office spaces, however, as fit-out costs finally settle, alongside a general fall in inflation, occupiers may begin to see stagnation or declines in net effective occupancy costs from 2025 onwards.”