The cost of renting offices is set to rise across global markets in the coming months, driven by higher prices for labour and raw materials, according to research.
Occupiers are likely to start paying more in service charge and fit-out costs over the course of this year, Savills researchers said, in a trend which has already started in Chinese markets, Kuala Lumpur and some US cities.
The agency said that despite costs having appeared to fall in dollar terms in a number of markets across the globe, including several across the EMEA region, this is largely down to fluctuating exchange rates.
In the UK, London’s West End market remains the most expensive in the world, with an annual net effective cost to occupiers of $267.84 (£205.36) per sq ft. Hong Kong, Tokyo and New York’s Midtown district follow as the next most expensive markets.
View top rents achieved in the West End >>
Cost increases in Asian markets reflect updates in service charges, as well as the beginnings of increasing costs to fit-out prime spaces.
Face rents are starting to rise in Shenzhen, Shanghai, Kuala Lumpur and Delhi, something researchers said demonstrated increased activity in these markets.
Other markets in the Asia Pacific region are yet to see increasing rents or additional costs, though these are expected across the globe in the coming quarters.
Jeremy Bates, head of EMEA occupational markets at Savills, said: “From higher prices for raw materials to increasing labour costs to keep up with rising inflation, it’s likely that most office occupiers will have to pay more to rent and fit-out their space in global cities this year.
“While rent is the usual indicator of increasing cost, service charge rises and higher capital expenditure will represent the largest contributions towards increased occupier costs in the coming quarters.
“Even in markets where landlords tend to pay for fit-outs, these costs will eventually be passed on to occupiers later in the form of higher rents.
“Nonetheless, for many office occupiers the expense is unlikely to deter them from selecting top quality spaces in prime central business districts to attract and retain talent, although they are carrying out extensive data gathering exercises on how employees are using space before making decisions on exactly how much to take.”
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