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Global Office Thermometer
Lower costs driven by appreciating
US dollar, weaker economic growth
in Europe and increased supply in
emerging markets
May 2015
This is the 18th edition of our annual report taking the temperature of
global office markets, measuring the cost of occupying office space on a
workstation basis, now and in the future, in 138 cities worldwide.
Report highlights
• Globally the average annual USD cost of occupying a workstation
fell by 3.9% in 2014
AMERICAS
4.8%
2014
• USD occupancy costs fell in six out of ten global office markets
New York
23k
• London’s West End remains the world’s most expensive location
• Global occupancy costs are forecast to increase on average by just
0.5% per year over the next two years, on local currency basis
San Fran
15k
Changes in occpancy costs
MARKETS
Rising & Falling
International occupiers are benefiting from significant falls in workstation
occupancy costs. Globally the average annual USD cost of occupying a
workstation fell by 3.9% in 2014. Broadly this reflected the sharp depreciation
of local currencies against the US dollar, slower economic growth in Europe and
increased supply in emerging markets. In addition, occupiers are using space more
intensively in some cities, thereby reducing the average cost of a workstation.
Stripping out currency effects reveals that global workstation occupancy costs,
measured in local currency, increased by just 1.8% in 2014.
On a USD basis, Asia Pacific saw the fastest decline, down 8.3% in 2014. Similarly,
EMEA posted an average fall of 7.8% in 2014. Occupancy costs in North America
Occupancy
costs have
increased in
60% of
markets in
the past year
and Greater China, however, increased by 4.8% and 2.4%, respectively.
On a local currency basis occupancy costs in the Americas increased (1.7%),
in 2014. In EMEA costs increased by 2.5%. Similarly in Greater China costs
increased by 4.3%, but fell by 1.2% in Asia Pacific.
Occupancy costs, measured in USD, fell in six out of ten global office markets in
2014. Costs increased in less than a third.
Measured in local currency, occupancy costs increased in 64% of office markets
covered. Conversely, costs fell in 34% of markets
2 | DTZ
Occupancy
costs have
decreased in
32% of
markets in
the past year
Moscow
11k
EMEA
-7.8%
2014
London
29k
GREATER CHINA
2.4%
Tokyo
12k
2014
Bejing
GLOBAL
-3.9%
2014
12k
Chongqing
2.3k
Pune
1.8k
Hyderabad
Chennai
1.8k
1.2k
Singapore
11k
ASIA PACIFIC
-8.3%
2014
Occupancy Cost Increase
Sydney
11k
Occupancy Cost Decrease
1
Occupancy cost (USD per workstation, 2014)
Change in occpancy costs (USD per workstation, 2013-2014)
+
35%
Moscow saw the sharpest fall in occupancy costs in 2014, falling by a third on a
30%
USD basis. Other Eastern European cities including Bucharest (25%), Bratislava
25%
(23%) and Prague (21%) also posted sharp falls.
20%
Some of the big Canadian cities also experienced sudden falls including Toronto
15%
(30%), Ottawa (11%) and Montreal (11%). Boston was the only major US city to
10%
post a fall (-2%).
ABU DHABI
SHENZHEN
DUBLIN
SAN FRANCISCO
HOUSTON
NEW YORK
5%
In Australia all the major office markets posted falls, measured in USD, including
MIAMI
0
Perth (16%), Canberra (14%), Brisbane (13%), Adelaide (12%) and Sydney (12%).
-5%
Some of the sharpest increases were in Middle East & Africa markets. Abu Dhabi
-10%
saw the fastest increase in occupancy costs of any city in our global ranking in
-15%
2014, increasing by 36% on a USD basis. Other Middle East markets also saw
PARIS
KUALA LUMPUR
BERLIN
PERTH
-20%
some of the fastest increases notably Jeddah (20%) and Riyadh (11%). Similarly,
PRAGUE
-25%
occupancy costs in Lagos increased 8%.
-30%
In Greater China, Shenzhen posted the fastest increase (20%). Other China cities
TORONTO
MOSCOW
-35%
posting fast increases included Nanjing (9%), Tianjin (8%) and Wuhan (8%).
Dublin posted the fastest increase (13%) in Europe, echoing the turnaround in the
Irish economy. London (West End) witnessed the second fastest increase (12%).
San Francisco led US cost increases (12%) followed by Silicon valley (9%) and
Houston (9%). New York workstation occupancy costs increased 6%.
2
Markets posting the sharpest falls and increases in
occupancy costs (USD per workstation, 2013-2014)
Global Office Thermometer Report | 3
LONDON (WEST END)
Global Dashboard
STOCKHOLM
PERTH
WARSAW
BRATISLAVA
-15
MOSCOW
TORONTO
-20
MUMBAI
KUALA LUMPUR
CHICAGO
-10
-5
0
5
DUBLIN
10
MINNEAPOLIS
15
SHENZHEN
20
-25
25
-30
30
ABU DHABI
Biggest changes in market placings (2013-2014)
Mumbai was the biggest faller in 2014, falling 25 places from
68th to 93rd on our list of 133 global cities. Likewise Toronto
(down 19 places), Malmo (19 paces), Moscow (17 places) and
Sao Paulo (16 places) fell markedly.
London (West End) remains the most expensive market at over
29,000 USD per workstation (2014). London is 28% more
expensive than the second placed city, New York.
Conversely, the biggest risers were Abu Dhabi (up 32 places),
Jedah (22 places), Shenzen (20 places) and Minneapolis (14
places).
The remainder of the Top 10 most expensive markets are
regionally diverse including Hong Kong (3rd), Lagos (4th), San
Francisco (7th) and Doha (10th). Four European cities – Zurich
(5th), Geneva (6th), Luxembourg (8th) and Paris (9th) –
complete the Top 10.
Top 10 most expensive markets (USD per workstation, 2014)
LONDON WEST END
London West End is the most expensive
location in the world. (29,340)
NEW YORK: (22,990)
HONG KONG: (21,110)
LAGOS: (19,080)
ZURICH: (15,210)
GENEVA: (15,160)
SAN FRANCISCO: (15,070)
LUXEMBOURG: (14,370)
PARIS: (13,690)
DOHA: (13,590)
BARCELONA
by comparison,
is 86% cheaper
than London
West End
4 | DTZ
4
3
LONDON (WEST END)
SAN FRANCISCO
DUBLIN
CHICAGO
MANILA
LISBON
CHENNAI
HYDERABAD
Workstation equivalence (2014)
The cost of one workstation in London is equivalent to 24
workstations in Hyderabad, the cheapest city in our global
ranking. Similarly, one workstation in London is equivalent
to 11 workstations in Lisbon, the cheapest European office
market in our ranking.
There are significant inter and intra regional differences in the
use of space. Emerging markets have higher than average space
efficiency rates than more mature markets in Europe and North
America. In Europe, the most efficient market – Bucharest –
uses nearly the amount of space occupied by a workstation in
the least efficient market – Helsinki. This reflects very different
local requirements and standards across Europe, especially
between Western and Central & Eastern Europe. The intensive
use of space is also driven by cost. Higher cost locations,
especially in Europe and North America US, use space more
efficiently than lower cost locations.
Average Space Per Workstation (SQM 2014)
Broadly, the cheapest markets are in India, China and Eastern
Europe. Chennai, Pune and Bengaluru are amongst the five
cheapest markets. Similarly, Chongqing and Qingdao are
on the bottom ten. Likewise, Bucharest also appears in the
bottom ten.
5
GREATER CHINA
GLOBAL AVERAGE
ASIA PACIFIC
8.8
11.6
6
11.1
MIN: 5.8 (MUMBAI)
MIN: 6.9 (CHONGQING)
MIN: 5.8 (MUMBAI)
MAX: 21.2 (HELSINKI)
MAX: 13.5 (TAIPEI)
MAX: 16.6 (AUCKLAND)
EUROPE
MIDDLE EAST & AFRICA
12.5
NORTH AMERICA
13.0
12.6
MIN: 7.0 (BUCHAREST)
MIN: 9.3 (TEL AVIV)
MIN: 8.2 (CHICAGO)
MAX: 21.2 (HELSINKI)
MAX: 15.0 (ABU DHABI)
MAX: 17.1 (OTTAWA)
Maximum Average Space Per Workstation (SQM)
Minimum Average Space Per Workstation (SQM)
Global Office Thermometer Report | 5
Ottawa
Toronto
Minneapolis
Chicago
4,580
5,940
9,210
7%
-21%
3%
11,360
3%
Montreal
6,750
0%
Boston
10,100
Calgary
-2%
11,340
New York
8%
Vancouver
22,990
9,540
6%
6%
Seattle
Washington DC
7,390
8,740
7%
Atlanta
0%
5,260
San Francisco
15,070
San Jose
12%
10,080
9%
Los Angeles
2%
Dallas
San Diego
Miami
8,800
6,640
3%
7,400
3%
5,760
7,510
-2%
5%
3%
1%
Mexico City
Phoenix
5,090
Houston
8,280
Monterrey
4,230
9%
7%
Denver
7,850
São Paulo
4%
7,860
Buenos Aires
Americas
In the Americas, New York is the most expensive market
at USD 23,000, reflecting a 6% increase in workstation
occupancy costs in 2014. Occupiers are using space more
intensively in the most expensive markets such as New York,
thereby offsetting the full impact of rising rents.
San Francisco registered the fastest increase in costs in
2014, up 12% to over USD 15,000. Similarly Silicon Valley
increased 9%. In total we recorded increases in 16 US markets.
Conversely, 6 US cities recorded falls. In Canada Calgary and
Vancouver posted the sharpest increases, but Toronto saw falls
in 2014. Most of the big Central and South American cities in
our ranking posted falls, reflecting slowing economic activity.
-5%
4,280
9,390
-7%
-1%
Santiago
4,940
-7%
7
6 | DTZ
Rio de Janeiro
Occupancy cost (USD per workstation, 2014) and
change over last 12 months (local currency)
Edinburgh
8,220
London
The Hague
Malmo
5,660
7,020
3%
2%
8%
29,340
Manchester
7,430
16%
11%
Bristol
5,790
8,160
12%
4%
13,130
Berlin
Newcastle
Birmingham
Helsinki
Stockholm
Amsterdam
-5%
4%
7,980
10,350
10,530
1%
6%
Moscow
Kiev
10,500
5,100
-33%
-20%
7,040
4%
Dublin
9,690
Cardiff
27%
5,610
3%
Luxembourg
14,370
11%
Paris
13,690
Munich
11,110
10%
4%
Lisbon
Mardid
2,740
5,060
-5%
Dubai
-1%
8,360
Zurich
Casablanca
3,530
15,210
8%
-2%
-17%
Abu Dhabi
10,830
Warsaw
Prague
5,230
4,010
-2%
-12%
EMEA
Lagos
19,080
35%
Bucharest
Al Khobar
2,940
5,280
-16%
Riyadh
8%
In Europe, London (West End) is the most expensive city
at over 29,000 USD. This is 11 times more expensive than
the cheapest city, Lisbon. Dublin registered the fastest
9,230
Istanbul
10,260
11%
4%
Jeddah
5,280
increase in costs, increasing by 27% in 2014. London
West End was second with 16%. This reflected strong
Johannesburg
Tel Aviv
demand and limited supply of suitable Grade A space.
3,440
8,260
7%
-2%
Conversely, Moscow saw the sharpest fall in occupancy
costs in 2014, falling by a third. Occupier demand faltered
9%
20%
because of the deepening recession. Middle East markets
led by Abu Dhabi posted relatively strong increases
despite fears of softer demand from the oil & gas sector
and expanding supply.
8
Occupancy cost (USD per workstation, 2014) and
change over last 12 months (local currency)
Global Office Thermometer Report | 7
Tianjin
3,350
10%
Beijing
Shenyang
11,680
3,910
1%
3%
Dalian
3,710
8%
Chengdu
3,120
-1%
Qingdao
2,720
Chongqing
2,320
1%
4%
Wuhan
3,390
Shanghai
10%
Hangzhou
Hong Kong
Nanjing
21,110
3,080
11%
Guangzhou
4,450
Shenzhen
2%
-2%
-4%
Taipei
6,850
7,590
23%
1%
5,590
9,050
-3%
Greater China
In Greater China, Hong Kong is the most expensive office market
at USD 21,100. Beijing, the second most expensive market, is
considerably cheaper at USD 11,700. Chongqing is the cheapest
market at USD 2,300, reflecting significant levels of new supply.
Shenzhen saw the fastest growth in occupancy costs in 2014, up
23%, underpinned by strong occupier demand and rising rents.
Conversely, Shanghai posted fastest decline, down 4% thanks to
a spike in new supply.
9
8 | DTZ
Occupancy cost (USD per workstation, 2014) and
change over last 12 months (local currency)
Seoul
11,370
3%
New Delhi
Chennai
7,790
1,750
-4%
-8%
Mumbai
Tokyo
Kolkata
11,660
2,440
6%
-8%
Manila
4,610
3,320
Ho Chi Minh
-30%
4,460
7%
-2%
Pune
1,830
Brisbane
-8%
8,470
Canberra
Hyderabad
5,050
1,200
-2%
-3%
2,320
Sydney
10,970
1%
Bangkok
Bengaluru
-1%
2,990
8%
Auckland
6%
7,150
2%
Kuala Lumpur
3,490
Singapore
2%
10,560
0%
5,460
4,130
1%
4%
Perth
10,320
Asia Pacific
Wellington
Jakarta
-4%
Melbourne
7,220
2%
In South Asia, Sydney and Singapore are the most
expensive market, with annual occupancy costs of nearly
USD 11,000. India cities are generally the cheapest led by
Hyderabad (USD 1,200), Chennai (USD 1,750) and Pune
(USD 1,800). Bangkok and Manila posted the fastest
increases in 2014. Conversely, Mumbai and Pune saw the
sharpest falls. High levels of vacancy, weak demand from
the BFSI (Banking, Finance and Insurance Services) sector
and declining rents were exacerbated by a softening in the
Indian Rupee.
10
Occupancy cost (USD per workstation, 2014) and
change over last 12 months (local currency)
Global Office Thermometer Report | 9
EMEA
0.8%
2014
AMERICAS
GREATER CHINA
-1%
0.0%
2014
2014
GLOBAL
0.5%
2014
ASIA PACIFIC
1.7%
2014
11
Change in occpancy costs (local currency per workstation), 2014-2016
Occupancy Cost Increase
Occupancy Cost Decrease
2014-2016 Forecast
International occupiers will continue to benefit from
ebbing cost pressures in numerous office markets.
Overall global occupancy costs are expected increase
on average by just 0.5% per year over the next two
years (on a local currency basis). Occupiers in North
America will enjoy an annual 1% cut in occupancy costs
in 2015 and 2016. Conversely, Asia Pacific is expected
to post the strongest average growth of 1.7%. Greater
China, however, costs are likely to remain unchanged.
Similarly, EMEA cost increases are set to average just
0.8%.
In Asia Pacific, we expect Indian cities to post some
of the strongest cost increases over the next couple of
years. Hyderabad (5%), Pune (4.4%) and Bengaluru
(3.5%) will lead cost increases, although these cities will
remain amongst the cheapest in the world. Occupier
demand, including that by international occupiers, will
continue to be robust. Tokyo costs are expected to
increase by 3.3% per year, thanks in part to stronger
economic growth.
+
In Greater China, Taipei (1.4%) and Hong Kong (1.3%)
are expected to lead growth, underpinned by relatively
strong occupier demand. Mainland cities are expected
to be broadly unchanged or post falls, reflecting
continuing new supply. Shanghai costs are forecast to
fall 1.6% per year. Beijing costs are expect to remain
broadly unchanged.
We expect most of the big US cities to post lower
occupancy costs over 2015 and 2016. Houston and
Dallas are set to see costs fall by around 4% per year,
due in part to slower demand from energy related
occupiers. Likewise, Boston is forecast to see a 5% drop.
Conversely, Chicago (3%) and Washington DC (2%)
will post the fastest annual increases.
In Europe the majority of major office centres will see
cost increases due to improving economic prospects
and inelastic new supply. Luxembourg (3%), Dublin
(3%) and London West End (2%) will lead growth.
Moscow will continue to post the sharpest falls (down
2%) reflecting ongoing economic weakness.
12
10 | DTZ
6%
HYDERABAD
PUNE
4%
LUXEMBOURG
TOKYO
CHICAGO
DUBLIN
2%
SEOL
0
TIANJIN
SHANGHAI
-2%
MOSCOW
-4%
HOUSTON
BOSTON
-6%
-
Markets posting the sharpest falls and
increases in occupancy costs (local
currency per workstation), 2014-2016
Methodology
Coverage and methodology
Main Components of DTZ occupancy costs
This 18th edition of Global Occupancy Costs - Offices presents
occupancy costs per workstation across 138 business districts in 60
countries worldwide.
Costs controlled and charged
by the landlord in a multi
tenant building, normally
property tax and service
charge
Using data collected from our extensive network of local DTZ offices
around the world, this survey looks at the main components of occupancy costs for prime offices across the globe (Figure 2). The report
provides a ranking of occupancy costs based on annual costs per
workstation, taking into account differences in space utilisation across
markets. Our space utilisation data reflects the best practice approach
in each market.
The data is submitted in local currency and according to local
measurement practices. Our calculation of occupancy cuts through
these local market practices to provide standardised cost units. We
convert all data into the RICS definition of Net Internal Area (NIA)
and USD. Thus, all data in this report is displayed on a Net Internal
Area basis. This allows for true cross market comparison.
The highest rent that could
be achieved for a typical
building/unit of the highest
quality and specification in
the best location to a tenant
with a good (i.e. secure)
covenant
Outgoings
Total Occupancy Costs
(presented on a Net
Internal Area Basis)
Prime Rent
Forecast time horizon
Whilst we produce five-year forecasts, we believe that two year
forecasts are more relevant to occupiers’ planning timeline. Not
only do short-term forecasts offer a higher degree of certainty
but landlords are also unlikely to address lease expiries that are
beyond two years. It should be noted that our forecasts cover
prime office space.
Definitions
Total occupancy cost
Prime rent
Total occupancy cost is defined as the average cost of leasing prime net
usable space.
The highest rent that could be achieved for a typical building/unit of
the highest quality and specification in the best location to a tenant
with a good (i.e. secure) covenant. This is a net rent, excluding
service charge and tax, and is based on a standard lease, excluding
exceptional deals for that particular market.
Total occupancy costs include rents and outgoings. Outgoings refer to
costs controlled and charged by the landlord in a multi tenant building.
Outgoings normally consist of service charge and property tax.
Our occupancy costs exclude easing incentives, such as rent-free
periods and fit-out costs, as well as facilities costs specific to the tenant,
such as cleaning or IT. We also exclude amortization of capital and
related expenditure.
Space utilisation standard per workstation
Gross Lettable Area (GLA)
Gross Lettable Area is the total of all covered areas occupied by the
tenant. There is no standard global definition of “lease area”. Whilst
a handful of countries have an official measuring code, the majority
rely on accepted local market practice.
Space utilisation standard per workstation is defined as the net internal
area divided by the number of planned workstations for which the space
is intended. It relates to the type of occupier that typically occupies
prime Grade A office space for which this survey is intended. It gives
a comparison of the amount of space required in different business
districts, based on a given number of workstations.
Furthermore, in some emerging markets the definition of a “leasable
square metre” may vary depending on the landlord. This means that
€200 per sq m in Paris does not compare to €200 per sq m in Delhi.
For cross-border comparison, this report converts all local GLA data
into the official RICS Net Internal Area (NIA) definition.
Space utilisation standard does not change significantly from
year to year as it is closely correlated to long-established working
cultures/styles, building design and nature of the office markets.
Nevertheless, it does evolve over time, reflecting changing work
styles and technology.
Net Internal Area (NIA)
Prime space
Prime space refers to buildings newly developed or comprehensively
refurbished (involving structural alteration, and/or the substantial
replacement of the main services and finishes), not previously
occupied, including sublet space not previously occupied.
Net Internal Area refers to space functional to the occupier.
It includes internal circulation space and meeting rooms. The area
occupied by partitions within the premises is considered part of the
net usable area as partitions are often an occupier’s option.
It excludes areas occupied by structural columns and common areas
such as stairwells, lifts, lobbies, external walls, vertical ducts and
common passages that are not used exclusively by the occupier.
Global Office Thermometer Report | 11
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Metrics Tool
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DTZ is a global leader in commercial real estate services
providing occupiers, tenants and investors around the
world with a full spectrum of property solutions. The
company’s core capabilities include agency leasing,
tenant representation, corporate and global occupier
services, property management, facilities management,
facilities services, capital markets, investment and
asset management, valuation, research, consulting, and
project and development management. DTZ provides
property management for 1.9 billion square feet, or 171
million square meters, and facilities management for 1.3
billion square feet, or 124 million square meters. The
company completed $63 billion in transaction volume
globally in 2014 on behalf of institutional, corporate,
government and private clients. Headquartered in
Chicago, DTZ has more than 28,000 employees who
operate across more than 260 offices in 50 countries
and represent the company’s culture of excellence,
client advocacy, integrity and collaboration.
For further information, visit us at www.dtz.com
Follow us on Twitter @DTZ
Publication Date 05.2015
Copyright © 2015 DTZ. All rights reserved.
Steven Quick
CEO, Global Occupier Services
+1 312 424 8000
[email protected]
Richard Yorke
Global Head of Occupier Research
+44 (0)20 3296 2319
[email protected]
Magali Marton
Head of EMEA Research
+33 (0)1 49 644 954
[email protected]
Kevin Thorpe
Head of Americas Research
+1 202 266 1161
[email protected]
Dominic Brown
Head of SEA and ANZ Research
+61 (0)2 8243 9999
[email protected]
Andrew Ness
Head of North Asia Research
+852 2507 0507
[email protected]