Modest net effective cost growth this quarter closes out the year as 2025 looks to see continued demand and strength in prime office markets globally
Contents
A look ahead
Ultra prime offices remain a key strategic asset for many businesses globally, as costs grew by a modest 0.1% in the final quarter of 2024. Overall, this quarterly movement has been driven by 0.3% of rental growth and a 0.2% increase to fit-out costs – but a slight uptick in landlord concessions in some markets has moderated overall growth. Demand for top-quality office space continues to grow in many markets – which, alongside the desire for best-in-class interiors and ESG credentials, has contributed to the rise of both rents and fit-out costs.
As wider economic fears begin to subside, alongside a gradual decline in global inflation, occupiers continue to reassess their real estate strategies. Our recently published outlook for 2025 shows that there is wide-reaching positivity for office occupiers – with 81% of respondents across our network signalling prime office rent increases and 91% expecting leasing volume increases throughout the course of the next year. The flight to quality for occupiers across the world looks set to continue into the new year, as businesses utilise prime office space to attract and retain the best talent globally.
Quarterly highlights
Of the 35 markets we monitor, 15 saw net effective costs to occupier grow this quarter. These increases were a result of gross rental growth and rising fit-out costs. However, many markets saw declines in these costs – as well as increases in landlord concessions, which has held back overall costs in some areas.
In Asia Pacific, net effective costs saw a decline of 1% this quarter. Markets across China continued to see falls, with markets we track across the country seeing an average decline this quarter of -2.6% as economic confidence remains muted. However, this is not a universal story across the region. Tokyo saw modest overall growth in the ultra-prime segment this quarter, reflecting positive momentum across the broader prime office market. Sydney and Melbourne also saw a positive cost growth of 1.7% and 1.6%, respectively. In Sydney, this is a result of reduced landlord incentives.
EMEA saw some cost increases this quarter, with 0.7% growth in net effective costs to occupiers. The overall cost changes in this region were more moderate this quarter, with the exception of Dubai, which saw a very significant 7.0% uptick in costs. This rise is the largest of any market this quarter – a result of significant rental growth, driven by constrained supply at the top end of the market and a growing number of new entrants seeking premium space. Dubai also has a strict office space per visa programme for businesses, putting extra requirements on companies looking to open an office or lease more space as they grow their operations in the city, which has not slowed demand.
North America saw 0.7% net effective cost growth this quarter, matching the pace of growth in EMEA. The trend in this region is stronger than the global average, with only one market in our basket reporting declines this quarter. Los Angeles Century City, in particular, saw strong rental growth in the fourth quarter of 2024 – largely due to intense demand for space. In the office market overall, both prime and mainstream, Los Angeles saw the highest reported leasing volumes in any quarter since Q1 2020, a testament to the elevated demand in the market.
Market Insights – a look ahead to 2025
The prime office market continues to evolve as it adapts to the challenges of workplace demands, climate concerns and changing occupier strategies. As we closed 2024, we surveyed our researchers across the Savills global network to get their insights on how the prime and broader occupier landscape may fare for the year ahead.
2025 will bring with it a host of new trends and challenges for prime office markets, eight of which have been ranked by our global network. Even with the darkest clouds seemingly behind us, fiscal and economic concerns will likely remain a top concern for businesses globally. Demographic and behavioural trends will also continue to drive activity in the prime office sector, as firms continue to compete for talent. This competition drives both site and city selection for global businesses and will remain a top priority for 2025.
Environmental and technological trends occupy the third and fourth positions – and these themes are interlinked, with many ultra-prime buildings incorporating the latest technologies to make operations as energy efficient as possible.
Technological trends also have the potential to significantly impact the occupier market in the short term – with advances in smart building controls, alongside AI integration, potentially improving both occupier and landlord conditions across the world.
Across our global network, we focused on the two key aspects of ultra-prime markets: rent and take-up volume trends. Throughout our markets in the prime office segment, respondents are positive about growth in both of these categories – with 81% anticipating that rents will increase, 91% expect leasing volumes to increase, and a majority predicting modest rises.
Despite this trend towards modest predictions, 9% and 16% of respondents suggest that rents and take-up respectively will increase by a significant amount – 5% growth or higher. In 2024, eight of our 35 prime office costs markets saw year-on-year rental growth above this 5% level and the survey responses reflect increased optimism for the year ahead.
Turning to take-up, only 3% of respondents predicted negative growth over the next year, highlighting the resilient and desirable nature of prime office space.
India and Saudi Arabia stand out as markets with the most positive sentiment, reflecting forecasts for continuing high demand. By contrast, the East Asian markets of China and Hong Kong report continued negative sentiment moving into 2025 – reflecting economic and geopolitical uncertainty which has dampened cross-border occupiers’ attitudes towards leasing in these markets.
METHODOLOGY
The Global Occupier Markets: Prime Office Costs 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 the top five 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 an annual, standardised format of USD per sq ft of usable space 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).