There is no better indicator of the success of a city than the numbers of people who want to visit, live and work there. But this success creates demand for space, which is increasingly hard to come by in an increasing number of world cities. This is especially the case on constrained land and historic sites, where expansion potential is limited. The consequent inability to keep pace with demand creates cost pressures, which is why rising rents are a common feature of our world cities.
The average accommodation cost per person in the Savills Executive Unit (SEU) and their household* (see definition below) in the 12 cities featured in this report is now $74,945 (see fig. 7), compared to $68,538 in December 2008. So despite the recession of 2008-10, when average live/ work accommodation costs fell by 5%, rents are rising faster than city GDP growth in most jurisdictions.
The biggest rent rises have taken place in cities where supply is at its scarcest. A good example of this can be seen in San Francisco, where live/work costs have risen by nearly 60% since 2008. Demand has been driven by businesses that want to be based in the top, high-performing, creative digital city, alongside households preferring urban living to suburban sprawl.
High live/work rental growth has also been seen in other Anglophone cities since 2008; New York, Los Angeles, London and Sydney have all seen rents spike between 18% and 28% during this time. Meanwhile, cities with more availability, such as Singapore and Dubai, have seen rents fall, so live/work accommodation rents in these cities are now 14% to 17% lower than they were in 2008. Dubai rents are now growing, while Singapore’s were still falling in the first half of this year by 3.7%, along with Paris (down 2.4%).
While cheaper rents may be seen as a competitive advantage for some, and rising rents a sign of city success for others, the popular narrative in an increasing number of cities betrays a different concern. The availability and affordability of accommodation is a well-aired topic in the media of most of our world cities as more people clamour to be in the urban centres. Is the economic growth of these cities able to keep pace with rising rents?
Our analysis of GDP to SEU live/work ratios suggests that large amounts of city production are diverted into real estate in most of our world cities. While our measure of accommodation costs to city GDP per head is not an absolute one (our SEU will have a higher economic output per head than the city average), it is indicative of which cities may be less fully rented than others.
It shows that world city governors will have to continue to look at ways to sustainably develop and densify their cities, and extend their reach, or a combination of the two. This means construction and transport infrastructure are likely to remain high on the list of priorities for some time to come.