Savills’ “Global Occupier Markets: Prime Office Costs” analysis reveals that in 2023, the average rent for top-notch office spaces in key global cities ended 1.9% higher than the previous year. However, the overall cost for tenants—factoring in the expense to fit out these spaces—jumped by an average of 2.6% year-on-year. This uptick is largely due to the growing demand for high-end fit-outs and designs by international occupiers.

The final quarter of 2023 marked the sixth consecutive quarter of rising net effective costs across 35 cities analysed by Savills. Notably, the top five cities, led by London’s West End, maintained their rankings, underlining the continuous appeal of premium office locations.

What to Expect in 2024

Looking ahead, Savills projects a modest average increase of 0.3% in prime office rents across the surveyed cities for 2024. However, regional outcomes are expected to vary significantly:

• Europe, Middle East, and Africa (EMEA) markets might see a 2% growth, driven by the scarcity of high-quality, sustainable buildings and a growing preference for premium spaces.
• North America is expected to witness static growth, with a 0% change in rents as landlords adopt a wait-and-see approach. Only the most sought-after properties may experience a price increase.
• Asia-Pacific (Asia Pac) could see a 1% decrease in rents due to the influx of new prime buildings, potentially leading to lower rental prices across these markets.

Other Factors Influencing Office Space Choices

Rebecca Webb, a Director at Savills, emphasises that while costs are crucial, other factors are increasingly influencing occupier priorities for 2024, “While costs clearly matter, the themes seen over the last year demonstrate that there are other factors at play in terms of occupier priorities for 2024 beyond the bottom line. Looking ahead, our global teams expect trends from the flight to quality, the strong focus on employee wellbeing, ESG and sustainability considerations, and flexible office solutions to continue. Whilst the specific challenges, market dynamics, and priorities vary, this underlines the necessity of tailoring occupier strategies to local conditions through the coming year. As new considerations begin to emerge such as the impact of AI on business decision making, or the need for a universal building certification to support the necessity to decarbonise, it’s an exciting time helping our occupier clients contend with the diverse trends driving their global real estate portfolios strategically.”

A Year of Mixed Narratives

Kelcie Sellers from Savills World Research team points out that despite a somewhat gloomy narrative surrounding office spaces in 2023, the year-end data revealed a general increase in rents as occupancy rates improved. However, the rise in net effective costs was more pronounced, driven by the escalating expenses associated with fitting out high-quality office spaces—a trend fueled by the growing preference for premium offices.