- Higher fit-out costs and service charge growth are set to increase office occupier costs in 2022
Global property consultants Savills have analyzed prime office costs in markets around the world. According to the new Savills Prime Office Costs (SPOC) insights, London, Hong Kong, and Tokyo topped the table of 29 countries for net effective occupier office costs at the start of 2022. The net effective cost to occupiers includes the gross rent (inclusive of property taxes and service charges) plus fit-out costs, less any concessions for rent-free periods.
Dubai, the only Middle Eastern city to be included in the analysis, took the 14th spot on the table, with costs coming in at $93.86 per sq ft (PSF), well under its global counterparts such as London (West End and City), New York (Midtown and Downtown), Tokyo, Hong Kong, Singapore, Beijing, and Shanghai. London (West End) was the most expensive at $267.84 PSF whilst Kuala Lumpur was the least expensive office market at $45.89 PSF. The emirate is currently the only EMEA city to report the highest office occupancy levels after Asian cities tracked in the Savills study.
From growing costs for raw materials to increasing labor costs to keep up with rising inflation, it is likely that in the coming quarters, office occupiers will have to pay more to let and fit out their spaces in global cities. Here are other key insights from the research:
- Fit-out costs are beginning to tick up in some markets, and whilst rent is the usual indicator of increasing cost, service charges and Capex will represent the largest increases in overall cost.
- Top-quality spaces in prime central business districts around the world are fundamental to encouraging staff to return to the office and attract new talent, these rising costs are therefore unlikely to deter many office occupiers.
- The number of workers returning to offices is rising in many global regions. Approximately 70% of workers have returned to offices in some capacity across Dubai.
- While there is the continued potential for black swan events, the likely trajectory for offices globally is an increased return to office working in some hybrid form.
Paula Walshe, Head of International Corporate Services, Savills Middle East said: “The findings of our global research mirror the trends emerging from our local analysis of Dubai’s office market during late 2021 and early 2022. As the flight-to-quality approach persists, the majority of the leasing activity in Dubai was concentrated across Grade A and prime office developments. There has been an increase in the number of companies that have retained or reduced their office space whilst relocating to newer high-quality developments and moved to adopt hybrid working models.”
Swapnil Pillai, Associate Director – Research, Savills Middle East added: “The Dubai and UAE government’s policies to ensure business continuity whilst safeguarding the health of its residents have been well received by the global business community. Over the past few months, inquiry levels from global multinationals have reflected this trend — an increasing number of companies, especially from Europe, are exploring office options across the city to either relocate part of their business operations or expand further into a new market.
“These trends make it an opportune time for those looking to invest in commercial properties in Dubai especially for prime and Grade A office space.”