Office Rental Incentives Drop Across The World
GLOBAL – Savills’ Prime Office Costs analysis showed that amidst the bleaker macroeconomic backdrop, office rental incentives offered by landlords to tenants have dipped by 1 percent in 2022, as occupants vie for limited prime office space that are eco-friendly, reported CoStar on Thursday evening (16 February, SGT).
Notably, office rental incentives include rent-free periods, fit-out deals, and shorter-term leases.
Property consultancy Savills revealed that Asia Pacific saw a 0.5 percent dip in office rental incentives on average. On the other hand, Europe, Middle East and Africa (EMEA) recorded the largest fall of 5 percent, largely due major gateway cities like London, Paris, and Dublin.
On the other hand, North America registered a 2 percent uptick on average, driven by San Francisco, which has been striving to retain and lure office tenants amidst the large-scale change in work arrangements in the tech sector.
Still, Savills expects prime office rents across the globe to increase marginally this year. While that in North America could remain flat, Asia Pacific and EMEA could register a gain of 1 percent and 2 percent respectively.
In 2022, the property consultancy noted that prime office rental growth averaged 3 percent across the globe, as increasing costs were “obfuscated” by falling office rental incentives and landlords’ contributions towards fit-outs.
As for the net effective costs of tenants, it rose 4 percent on an annual basis in 2022, which is significantly lower than inflation as well as the growth in energy and labour expenses. Notably, net effective costs take into account office rent, fit-out, and any rental incentives.
Savills’ Director of tenant advisory team in EMEA Matthew Fitzgerald noted that despite the uncertain macro-economic environment, the fundamental supply/demand imbalance for prime office space across many key global cities has held office rents up.
“Incentives have largely fallen, and office rents are actually forecast to increase over the next 12 months, but the inflationary impact on fit-out and service charge costs is now affecting occupiers.”
“The situation varies across cities of course, depending on the industry types associated with that city, but an almost-universal rush for ESG compliance with multinational companies considering only ‘green rated’ buildings will likely to continue to push up pricing for the high-quality, certified assets, he added.
According to Savills, London’s West End has the most expensive office space in terms of net effective cost at US$248.17 psf, followed by Hong Kong, New York’s Midtown, Tokyo and the City of London.