Property in London is now more competitive on the world stage as Brexit has pushed it down the global real estate rankings, new research shows.
This time last year London was the most expensive world class city for international businesses to rent office and living space for their employees, but the devaluation of sterling means it now ranks closer to Paris and Tokyo.
The latest rankings index report from international real estate advisor Savills now puts New York and Hong Kong in a league of their own with much higher accommodation costs, according to international real estate adviser Savills.
It now costs an average of US$88,800 per person to rent office and housing space in London, well below the price of June 2014 of US$124,500, according to the index which measures annual accommodation costs per worker in leading world cities. London is now 10% cheaper than it was in December 2008.
In the two years running up to the Brexit vote, London vied with New York and Hong Kong for the title of most expensive world city to accommodate employees. New York took top slot before the vote as rental growth accelerated, but Brexit’s impact on sterling has made the UK look much better value on a world stage.
The cost for top ranked New York of living and working per head is $111,900 and for Hong Kong it is $105,400 with London in third place at $88,800, then Paris at $75,100 and Tokyo at $73,700.
In New York the current cost is slightly below the $114,200 per person peak recorded in June 2016. At the same time, Hong Kong has continued to close the gap on New York, as new stamp duty charges implemented in November encouraged more people to rent rather than buy and caused a demand shock.
New York remains twice as expensive to locate employees as in rival US city of Los Angeles and 71% pricier than San Francisco. Similarly, Hong Kong is well over twice the price of rival Asian world class cities Singapore and Shanghai.
The gap between London and Paris has closed from over $24,000 per person per year to under $14,000. However, Dublin and Berlin, both often cited as potential post Brexit alternatives to London, still represent savings of over $40,000 and almost $60,000 respectively, and this despite robust rental growth in Dublin across both residential and commercial sectors.
The cheapest is Rio de Janeiro at $17,900, Johannesburg at $22,300, Berlin at $28,400, Mumbai at $29,800 and then Lagos at $ 42,700.
On average, residential costs constitute 75 per cent of the total accommodation costs recorded in this survey. In some cities, like Dubai, Dublin and Paris, they are over 84%.
‘The real test of whether a city is good value for occupiers lies in how productive an organisation can be in that city and how competitive a city is in attracting human capital to its job market,’ said Yolande Barnes, director of Savills World Research.
‘In many cities, the cost of office accommodation pales into insignificance against the cost of personnel and residential rents will impact wage demands, hence the inclusion of housing in our live-work index,’ she explained.
‘While accommodation costs are only a small part of a company’s decision making process when choosing where to locate teams of staff, this analysis is a guide to the shifting relationship between world cities on an annual basis,’ she added.
Barnes also explained that cities may become more or less competitive on a short term basis but it is their long term costs that need to be taken into consideration when signing leases or building accommodation.
‘For successful organisations, business location is a long-term play, not a short-term decision so sound business fundamentals are of course far more important than decisions based on the cost of accommodation at a given point in time. London’s relative advantage may be eroded if sterling rallies but our view is that the appeal of London as a world city will continue,’ she concluded.