Occupying offices is becoming more and more expensive on a global scale. The source of the increase is not rent, however, but a rise in space fit-up costs and rental charges, according to the first quarter 2022 edition of Savills Prime Office Costs.
In terms of space planning, attempting to circumvent the increases by securing spaces where these costs are included in the rent will ultimately not prove effective, the report notes. Even in markets where landlords tend to pay for fittings, those costs will eventually be passed on to occupants later in the form of higher rents, said Jeremy Bates, head of business markets EMEA at Savillsin a prepared statement.
In the US office market, costs rose only marginally in the first quarter, signaling the start of the impending rise in costs due to inflation, which will trigger higher costs for fit-ups, especially as more workers continue to return to the office in a full-time or hybrid work environment.
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In Asia-Pacific, however, the cost increase is more evident in certain regions. In Hong Kong, various cities in China, and Kuala Lumpur, service charges have resulted in higher office costs, and the cost of fitting out prime spaces is also starting to rise. In EMEA, costs are just starting to rise, but this change is due to the lifting of lockdowns and work-from-home orders.
For the foreseeable future, cost increases in the office market are not enough to serve as a major deterrent in the sector, according to Savills. As noted in the SPOC report, in the world’s top CBDs, a top-notch office environment is one of the top incentives employers use to attract and retain new talent.
Despite the variations in costs, from quarter to quarter, the world’s most expensive office markets remain the world’s most expensive office markets, with London’s West End retaining the top spot, followed by Hong Kong and from Tokyo. Midtown Manhattan continues to hold the fourth position ahead of the City of London, which concludes the top five list.
pass it on
As office users wait for rising space fit-up costs and service charges, they may have to deal with other factors that will drive up rents later this year or in the not-too-distant future. . In particular, rising material and labor costs are starting to trickle down as occupant costs, so the increases are relatively small as a percentage of total cost in many markets – for now. . Eventually, the increase will become more evident as a percentage of the total cost, and occupants will feel compelled to find ways to mitigate the additional demand on their wallet.
“With rising material and energy costs eventually being passed on to occupants, sustainability will only become more important,” according to the Savills SPOC report. “From finding green certified buildings to considering other elements of their ESG strategy, businesses and office occupiers will look to sustainable changes to reduce expenses while attracting workers to their businesses and office. .”
Read Savills’ full report.