Dubai

Tech success drives office rents towards finance sector levels

Tech, creative and digital businesses, which often start life on the fringes of core central business areas, have tended to be the lucky recipients of lower rents compared with their financial and corporate neighbours, but this could all be about to change according to our latest report. 

Between December 2008 and June 2015, tech, creative and digital office rents in Hong Kong, San Francisco and London rose by 46 per cent, 43 per cent and 30 per cent respectively, while worldwide they have risen on average by 8.6 per cent.

A digital or creative company now needs to budget an average of $10,453 per annum per staff member for office space. This is still only 47 per cent of an average hedge fund’s rent ($22,399 per worker), but while overall financial rents have fallen by 1.8 per cent, creative sector rents have risen by 8.6 per cent.

Will the gap ever close? It already has in some local markets: in Sydney we found that creative rents have just about overtaken the financial sector, standing, on average, 7 per cent higher at $9,986 for a tech or creative worker and $9,320 for a financial employee.

Meanwhile, in Dubai, financial sector rents have fallen by as much as 60 per cent since 2008, making  them virtually comparable to tech and digital rents. A tech occupier in Paris will also find  a relatively small difference between their rent and that of a financial company. 

Could we therefore see tech occupiers encroaching on areas considered traditional financial bastions? If tech and digital rents continue on their upwards trajectory then it’s a possibility. With corporate financial centres such as Wall Street and the City of London now priced lower than Midtown and Mayfair, where a new breed of small, specialist, digital-age investment and finance houses have emerged, we could see a blurring of the lines.

The disruption caused by the digital age and tech occupiers is set to continue, with the winners and losers in the marketplace dictating the course of the rental levels over the next few years. While many landlords are already adapting buildings to suit these new generations of occupiers, they should be conscious that the market changes quickly: potential tenants are likely to continue to seek new locations and new ways of working to maximise their attraction to the footloose but valuable workers in their industry. Investors who can read the headwinds, act quickly and provide the right environments for this sector will see the best returns.

Further information

Read the full report – 12 Cities:The Rise of the Digital City.

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