Research article

A question of cost

London has overtaken Hong Kong as the most expensive world city.

The big story this year is that Hong Kong has ceased to be the most expensive of our 12 cities in which to rent living and working space (see fig. 4). It had previously topped the ranking for the past five years. A combination of falling residential rents and, most importantly, a weakening currency, has increased cost competitiveness in the city. This means London is the most expensive city in which to accommodate staff. Working against London has primarily been sterling’s appreciation against the US dollar, up until June 2014. This, coupled with significant increases in office rents, has pushed up London’s total costs in dollar terms.

Despite its climb in the rankings, London is still a way off the record live/work cost set by Hong Kong in 2011 at $128,000 per annum.

New York stands third, up one spot over 2008. Modest falls in residential rents in the first part of 2014 have been offset by strong rental increases in the office markets. Paris, in spite of modest increases in costs since 2008, now sits fourth in the rankings, outperformed by London, Hong Kong and New York in recent years. However, Paris is still the most expensive city for tech companies, beating even London. Space for creatives in the French capital is simply in shorter supply than for the finance industry.

In Tokyo, improving economic conditions in Japan have spurred rental rises, pushing up Tokyo’s live/work costs by 3.6% in dollar terms over the past six months.

But Tokyo’s competitive position has been helped by the depreciation of the yen, so costs for our SEU are now on a par with Singapore. Compared to 2008, Tokyo’s live/work costs have fallen 23%, pushing it from third to fifth in our rankings.

The ‘golden confluence’ of improving economy, rising rents and better competitiveness makes the city increasingly attractive to investors, especially those seeking income.

At the other end of the table, comparatively affordable Rio de Janeiro and Sydney have seen significant increases in live/work costs since 2008, up 86% and 58% respectively. Mumbai has seen costs fall 21% in dollar terms, as India’s economic growth faltered over the period.

Mid-table Dubai, meanwhile, has seen volatile live/work costs that are currently 16% below their 2008 levels. This makes the emirate more affordable on the global stage than it was at the height of the boom.

As global interest in the city increases, total costs have grown by 25% in the year to June 2014 alone, so Dubai’s advantages may be short-lived if this continues.

Figure 4

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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