Research article

Accommodating the city

The latest shifts in our live/work city rankings and the affects of the US dollar appreciation.

The cost of accommodating a workforce in both residential and commercial premises in world cities has fallen over the past year. The Savills Executive Unit – a workforce of 14 people and their families – now costs an average of US$75,738 per year per person in rents and property costs, compared to US$78,831 a year previously.

A significant component of this falling cost is the US dollar’s appreciation against other world currencies, which makes annual property costs look cheaper in dollar terms. But, even in local currencies, several countries have seen falling rents, while others are experiencing static or low growth. This is good news for companies who occupy office space and have to house their employees – or pay wages commensurate with local housing costs. These companies had seen the total cost of living and working accommodation rise by 9.4% in local currency terms during the five years to December 2013, but are now enjoying dollar costs back to 2011 levels.

The three most expensive cities – London, Hong Kong and New York – are distinctly more expensive than the rest, revealing their status as dominant world-class metropolises (see fig. 5). Rents in these cities have been pushed to high levels in the past by a supply-demand mismatch, but are sustained by the very strong economic growth and rewards companies have enjoyed from locating in these cities.


Figure 5

Still looking expensive in light of its recent, relatively lacklustre, economic performance is Paris. This is largely the result of growing demand for central Parisian accommodation from a variety of companies – some of whom are seeking to ‘re-relocate’ back from the suburbs, but finding a limited number of premises. Landlocked by its inner suburbs, Paris does not enjoy the same extent of regeneration potential that vacant docklands and post-industrial sites have afforded, say, London, Tokyo and New York, so has a limited commercial offering – particularly for creative businesses.

The biggest changes in our rankings in the past six months have been seen in the dollar costs of the lower-tier cities, with Moscow the most notable example. The plummeting value of the rouble has demoted Moscow from seventh to eighth place, still above Shanghai but now cheaper than Dubai and Sydney (not featured on the chart this issue), thanks to 25% cost falls between June and December 2014.

Tokyo remains competitive thanks to yen depreciation against the dollar and despite a modest rise in office and residential rents in yen terms. This has allowed Singapore to rise in dollar expense terms, with it remaining in sixth place. This rise is the result of the pegged Singapore dollar staying strong against the US dollar – but also rising office rents. Singapore is a city that is still attracting global businesses, but one where the supply of office stock has not increased at the same pace as occupier demand – or residential stock.

Savills Live/Work Index

Businesses occupy different spaces in different buildings and these change from city to city – even if they are occupied by the same company. Similar-sized companies in different industries may also occupy very different spaces in the same city. This means that headline comparisons of grade A rents per square metre are inadequate. Office workers in the finance sector are more likely to be densely packed into a small unit in Tokyo, but take far greater space in Dubai, for example. To build a true picture, a variety of property and locations should be taken into consideration.

Employers are also interested in the cost of living accommodation for their workers. This is particularly relevant as upward pressure on wages may be stronger in locations where the residential cost of accommodation is high. It will also be easier to attract the best staff in the most liveable, vibrant and stimulating living spaces.

The Savills Executive Unit (SEU) measure of accommodation costs takes all this into account, as well as additional costs such as local taxes and rates. We think this is a more effective measure of city competitiveness and value for real estate.


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