Across the prime office markets tracked for this report, pricing for prime top-tier offices has held steady during the first quarter of 2023. Net effective costs – the ‘all in’ cost for occupiers – have increased by 1.1%, largely due to the continuing desire for best-in-class office spaces for occupiers and for their staff. As has been the case for most of the last year, rising costs are being driven by increasing fit-out costs, themselves being affected by inflation in materials and labour costs, though supply chain delays seen in the immediate wake of the pandemic appear to have abated in most locations. Face rents are beginning to marginally increase across the world, rising an average of 1% for the first quarter.

The markets in the Americas have seen flat rental levels and net effective costs during the first quarter, continuing the trend from 2022, where landlords seem to be keeping pricing steady in the face of inflation and other rising costs in an attempt to attract and retain tenants. Fit-out costs have also levelled out across the region as inflation has filtered through materials and labour costs. Vacancy rates and availability rates continue to be monitored as firms reassess their space needs across the country and not just in major metropolitan centres.

EMEA locations experienced cost increases of 3% on average across the region in Q1. Amsterdam has seen the strongest levels of cost increases for the region, as rising fit-out costs have now filtered through to occupiers. Other markets seeing increases in costs include Dubai, Paris, Berlin, and Frankfurt, with most of these locations seeing rises in rental costs rather than fit-out costs. Across the region, annual gross rent (inclusive of property taxes and service charges) has increased by 2.1% in the first quarter of the year, as occupiers continue to push for best-in-class spaces and new assets come to market, increasing the price points for top-quality offices.

Costs across Asia Pacific office markets were also flat in the first quarter, as the region has proved much less volatile over the past year in the face of global economic headwinds. However, markets across the region haven’t experienced the first quarter of the year in the same way. Hong Kong, Shanghai, Kuala Lumpur, and Ho Chi Minh City each experienced falling costs for the first quarter of 2023, whilst the other markets saw costs increase for Q1. Compared to the first quarter of 2022, net effective costs to occupiers have risen 1.2%, which is significantly lower than the 9.7% for the year seen on average across the EMEA markets, a figure in line with the headline inflation rate for the region for last year.

Methodology

The Savills Prime Office Cost (SPOC) Index 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 top 5 most expensive properties to calculate ultra-prime average. The North American markets use a sample of very high rent threshold buildings (leasing occurring at the highest end of market).

All costs are reported in a standardised format of USD per sq ft of usable space per annum 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).

_{Read the articles within Spotlight: Savills Prime Office Costs – Q1 2023 below.}