Demand for high quality office space continues to grow worldwide, and so do its costs

Rents for prime office space across the globe rose by 0.3 percent and fit out costs by 0.2 percent in the final quarter of 2024, says Savills, as demand for top quality office space continues to grow in many markets around the world. According to Savills in its latest quarterly Prime Office Costs report, in the fourth quarter of last year, average net effective costs rose slightly, by 0.1 percent, continuing a moderate upwards trend of 1.9 percent over 2024. London (West End), Hong Kong, and New York (Midtown) remain the top three locations in terms of costs of the 35 markets Savills examines.

Savills says that several markets saw significant cost changes last quarter, notably Dubai and Los Angeles, which witnessed a 7 percent and 5 percent net effective cost to occupier growth, respectively, supported by strong demand. EMEA saw some cost increases last quarter, with 0.7 percent growth in net effective costs to occupiers. The 7 percent increase in Dubai is the largest of any market and the result of significant rental growth driven by constrained supply at the top end of the market combined with a growing number of new entrants seeking premium space.

In Asia Pacific, net effective costs saw a decline of 1 percent in Q4 2024. China prime offices saw a fall of 2.6 percent while Sydney and Melbourne, at the other end of the spectrum, saw costs grow by 1.7 percent and 1.6 percent, respectively, as a result of reduced landlord incentives in Sydney and rental growth in Melbourne.

North America saw 0.7 percent net effective cost growth last quarter, matching the pace of growth in EMEA. Los Angeles Century City, in particular, saw strong rental growth, 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 in 2024.

Overall leasing activity increased by 18 percent in H2 compared to H1 2024, says Savills. In its complementary Market Makers report, which examines the top 10 prime office occupier deals by size in the same 35 cities, the international real estate advisor found that just over half (54 percent) of the deals examined were either new leases or expansions, reflecting positivity among major occupiers and the resilience of premium office space. Just over a third (33 percent) of the deals were for space of the same size, while 13 percent reflected downsizing. Globally, finance overtook tech as the number one industry for H2 2024 deals (figure 2) for both deal numbers and area transacted.