Office occupancy rates increase worldwide in 2024

Many companies try to encourage employees to return to the office by investing in the improvement of the space available to them

According to Savills latest Impacts study, rents for prime office space in the world´s major cities increased by 1.1 per cent last year (from the first quarter os 2023 to the first quarter of 2024), as the structural trend of demand for high-quality office space continues into 2024)

Office occupancy levels continued to rise, as many companies seek to incentivise employees to return to the office by investing in increasing the quality of the space available. Office utilisation rates continued to rise in all the main regions (graph 1), although there is still a large divide between Asia-Pacific locations, which have consistently maintained a strong office culture, and Europe and North America, where more flexible working practices have taken root.

This trend is reflected in the costs for prime office tenants: net effective costs increased more in regions where occupancy rates are lower, as tenants tend to invest in prime office space to boost their return to the office and also to fulfil sustainability requirements. In the EMEA (Europe, Middle East and Africa) and North American markets, annual net effective costs grew by an average of 4.8 per cent and 2 per cent respectively on the previous year, while in Asia-Pacific they rose by just 0.6 per cent, although the picture varies quarterly from city to city (graph 2).

 Part of the increase in costs for tenants has been offset by concessions and incentives from landlords: landlords’ overall spending on fit-out costs (excluding turn-key space) is increasing in North America and Europe. Since the first quarter of 2019, the average cost to landlords of fit-out projects has increased by approximately 37.5% in the 35 markets monitored by Savills. However, this increase does not match the rise in fit-out costs more broadly, which has resulted in landlord spending as a percentage of total fit-out costs falling to 23.4 per cent in the first quarter of 2024, compared to 26.8 per cent at the start of 2019

Alexandra Portugal Gomes, Head of Research at Savills, emphasises: "Companies are increasingly looking to offer their empoyees the best conditions to encourage them to return to the office. Younger generations in particular prioritise well-being, professional development and experiences, which are essential factors in today´s office spaces. Buildings with green spaces, restaurants or a gym and spa in their surroundings, among others, that promote a balance between personal and professional life are increasingly sought after".

Jeremy Bates, EMEA Head of Occupational Markets at Savills, comments: “Landlords have to work harder to attract and retain tenants, but it’s clear that tenant demand for the best space remains strong, even in markets where office utilisation rates may remain below pre-pandemic levels. In some cities, including New York, where the supply of premium space remains scarce, we’re even seeing landlord concessions start to decline.”

Kelcie Sellers, Associate Director in the Savills World Research team, says: “The potential to achieve higher rents serves as a strong incentive for office landlords to invest and aligns with the upward trend in prime rental growth, even if they have to initially offer incentives to tenants to help them reduce fit-out costs. However, not all offices will be able to follow this trajectory. Although our analysis focuses on rental trends and net effective costs for prime offices, for lower quality stock, adapting to the new standards can be prohibitively expensive: offices in less desirable locations may never attract the tenants – and therefore the rents – to justify the investment. In these cases, repurposing becomes the obvious, or only, approach, with the range of alternative uses growing around the world with housing, hotels and education featuring prominently.”