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.”

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Notes to Editor:   *Prime is used to describe the very top tier of Grade A office space in a market, typically the office space demanding the highest 5-10% of rents: the term is more commonly used in EMEA and APAC with the term ‘trophy’ preferred to describe the same space in North American markets. Grade A offices are the most modern offices, typically brand new space or very recently refurbished offices that offer the highest amenities and facilities, strong sustainability credentials, advanced infrastructure and are centrally located.

Savills ‘Global Occupier Markets: Prime Office Costs’ presents a quarterly snapshot of occupancy costs for prime office space throughout the world, as provided by our expert, local tenant representation professionals and researchers. The adjusted annual all-in occupancy cost represents real-time transaction terms for 20,000 sq ft (2,000 sq m) of usable space based on a basket of the top five most expensive properties to calculate prime average.

All costs are reported in a standardised format of USD per sq ft of usable space per annum at a fixed exchange rate to account for variations in currency, reflect local payment protocols, and adjust for measurement practices across the globe. We have also factored in the credit value to the tenant generated from abated rent and the cost associated with fitting out the premises in order to provide an ’all in’ total occupancy cost in USD per usable square foot. The fit-out costs were gathered from local Savills teams assuming the leasing scenario described above, plus the following: i) 30% cellularisation with the remainder of space open plan, ii) construction and cabling only (no furniture or professional fees). Data as of 30 September 2024.