Prime office rents and fit-out costs pushed prices up 0.5% in Q1 2025. Occupier demand for best-in-class space continues as new supply emerges globally.
Contents
- (New) supply and demand
- Quarterly highlights
- Prime office costs update – five new markets
- Market insights – New supply and global trends
(New) supply and demand
Prime offices continued their trend of price growth as costs increased by 0.5% in the first quarter of 2025. Overall, quarterly movement has been driven by rental growth of 0.6% and a 0.7% increase in fit-out costs globally. Demand for top quality office space continues to rise in many markets, which has put pressure on occupiers as vacancy remains low for prime stock.
Our analysis this quarter examines how several markets are developing new prime office buildings to meet this demand for best-in-class space. We look at notable new developments across key markets and highlight emerging trends, as developers continue to innovate to attract the best tenants with the safest covenants. We have also introduced five new markets; Prague, Warsaw, Cairo, Riyadh, and Boston, broadening our coverage to a total of 40 markets.
Quarterly highlights
Of the 40 markets we monitor, 21 saw net effective occupier costs grow this quarter. Increases resulted from rises in gross rent and fit-out costs. However, many markets saw declines in these costs coupled with increases in landlord concessions, which has held back overall costs in some areas.
In Asia Pacific, net effective costs held steady with a very modest 0.1% rise this quarter. Much like in previous quarters, costs across China continued to decline; the key markets we track across the country saw an average fall this quarter of -1.8% as economic confidence remains muted. Despite declines in China, other markets in the region have seen significant rises in occupier costs - notably Mumbai with a 5.2% increase over Q4 2024. Here, the cost increase is mainly driven by rental growth, with robust demand and limited availability in prime buildings - central business district vacancy sits at just 2%.
EMEA saw significant cost increases this quarter, recording 1.9% growth in net effective costs to occupiers. Occupier costs across the region rose at an above-average pace, with Riyadh, Dubai, Frankfurt, and Paris all registering increases exceeding 4.0% in Q1. In Riyadh, net effective costs rose by 5.2%, driven in part by the Regional Headquarters programme, which has incentivised international businesses to establish a local presence to retain access to government contracts. Frankfurt recorded the strongest quarterly cost growth across all markets at 7.4%, reflecting sustained demand for premium space, which is driving up costs and reducing availability.
North America saw a -0.8% net effective cost decline in the first quarter, as higher vacancy rates put downward pressure on the market. Trophy assets remain highly desirable as a means to retain and attract the best talent, and declines in this region are nuanced on a market basis. For example, in Chicago decreasing costs were not a result of slowing rents or fit out costs, but rather an uptick in landlord contributions toward fit-out costs, which drove a -3.4% fall in net costs to the occupier. Washington DC, meanwhile, recorded a modest cost increase of 0.2% due to an undersupply of high-quality prime stock, as businesses still place a premium on being in the Capital. Los Angeles costs saw the steepest growth in the region due to continually high demand and rising fit out costs this quarter.
Prime office costs update – five new markets
At the start of 2025, we expanded the markets we track, with the additions of Prague, Warsaw, Cairo, Riyadh, and Boston.
In Europe, the addition of Prague and Warsaw broadens coverage of key EU member markets in central Europe. Both cities have strong prime office markets with several best-in-class buildings for local and international occupiers backed by strong talent pools. In Prague, high quality prime offices account for approximately 21% of the total stock as diverse businesses are drawn to the market. Warsaw is quickly becoming a key European market and a regional centre for commerce to rival traditional hubs in Germany and France.
In the Middle East, we have added Cairo and Riyadh, reflecting the importance of this dynamic region. Cairo offers businesses access to a fast-growing market with a strong value proposition for global occupiers interested in expanding into the region. Riyadh has significant infrastructure and development projects underway as it continues to transform into a global business centre.
Boston, the top life sciences city in Savills life sciences market index is our latest North American addition. Access to some of the best universities in the world ensures a deep talent pool, a key driver of business location and expansion decisions.
Market insights – New supply and global trends
The prime office market continues to see gradual global net effective cost increases in the post-pandemic world. This growth can be attributed to several factors, such as the flight to prime and the intense competition for attracting the best talent that many businesses face. Heightened demand for best-in-class prime office space has been a key driver in the rise of rents and in turn, net effective costs.
With rising demand for best-in-class space comes new supply. We consulted our global researchers to understand the nature of this new supply and the trends that are shaping top-tier office design worldwide.
Asia Pacific markets are seeing continued strong development of new prime office stock, with many cities seeing five or more new best in class buildings completed or in the pipeline.
Proximity to public transportation is especially important. Projects in China, for example, favour direct metro access. Taikoo Place in Beijing is being developed in the desirable Chaoyang District. In Singapore and Kuala Lumpur, a greater focus on net zero buildings with wellness workspaces is playing out in the prime sector, IOI Central Boulevard in Singapore is one such example.
The latest projects across Europe and the Middle East have a distinct focus on tenant wellbeing, incorporating the latest wellness-centric designs and technologies. For example, a focus on biophilic design elements such as the incorporation of natural building materials and more plant life in buildings is a key trend and can be seen in developments such as the CubeHouse in Amsterdam and Diriyah Gate in Riyadh.
More historic European business hubs such as Dublin, Zurich and Paris are seeing a trend towards the reconstruction and redevelopment of older existing properties into top-tier modern office space. Bahnhofstrasse 75/79 in Zurich has updated a 1912 original building to meet modern occupier standards. This trend highlights rising occupier interest in distinctive, character-led buildings and a parallel drive to reduce embodied carbon, aligning with ESG ambitions.
While the US and Canada generally see limited new development at present, some common trends can be observed in new supply. New developments tend to centre around solid anchor tenant pre-leases during the planning stages, rather than speculative builds. Developments in cities across the continent increasingly incorporate private outdoor elements such as loggia spaces, as seen at Century City Centre at 1950 Avenue of the Stars in Los Angeles.
New, top-tier developments globally are an indicator of the direction of travel for the prime office market, as developers respond to evolving occupier expectations. Though trends vary by region, demand for best-in-class space in major hubs is universal.