New York rises up the ranks of world’s most expensive cities
18 September 2013
New York has displaced London as the world’s second most expensive city to rent business and residential space for employees, behind Hong Kong, while Singapore offers businesses locating in the city the best value accommodation in relation to the size of its economy according to international real estate advisor Savills.
In its latest World Cities Review, published today, the firm updated its ‘total accommodation cost’ measure of the top 10 world cities and found that it has remained broadly stable, falling an average of just -0.05 per cent in the first half of 2013, but having risen in ‘old world’ cities and fallen in ‘new world ones.
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This has made emerging and recently emerged markets relatively more competitive again, with Sydney, Shanghai and Mumbai offering the lowest total base business costs, with Mumbai costs around a quarter of Hong Kong. The costs of accommodating core international business units in both prime financial and secondary ‘creative’ locations along with the associated residential rental requirements of 14 households are taken into account in the ‘total costs’ measure.
New York has risen from being the fifth most expensive city at the beginning of 2010 to 2nd by June 2013 having seen total costs rise 36 per cent from their end 2009 nadir and a total of 19 per cent over the past five years. London has recovered strongly, totalling 17 per cent since bottoming out in 2009 to sit in 3rd place.
Savills has created a ‘value for money’ ranking, measuring accommodation costs against city GDP per head which is taken as an indicator of the income potential for businesses located there.
By this measure, Hong Kong, where total accommodation costs are almost four times those of Mumbai, actually looks three times cheaper than Mumbai, where locating an international business might be viewed with regard to market volume and labour availability rather than premium revenues. This makes real estate in the Indian city look very fully valued, particularly as the BRIC economies are slowing at the present time and rival economies are emerging as sources of low-cost labour.
Singapore, where unadjusted total accommodation costs are high in a new world context, proves to be the cheapest city in relation to its GDP per head. Ranked in this way, Singapore is less than half the cost of Hong Kong and approaching five times cheaper than Mumbai.
“Headline per square foot office rents are a misleading indication of the total real estate costs faced by relocating companies,” says Yolande Barnes, director of Savills world research. “The value of real estate is higher where more corporate revenue can be generated.
“In other words, it is worth paying more to accommodate an executive team in Singapore with its high GDP than in the low GDP Mumbai.”
* Savills uses a core business unit measure, the Savills Executive Unit. This is a 7-person strong staff team representative of a start up business, designed to be a comparable measure across all cities. The table shows total costs for 2 teams, one located in a prime financial sector location, the other in a secondary/creative location to give a representative cross city costing.
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