London has surpassed Hong Kong as the world's most expensive city for businesses to locate workers, according to foreign real estate adviser Savills. Hong Kong had previously topped the list for an uninterrupted five years. New York and Paris round out the quartet of major cities where the total cost of renting residential and office space exceeds $100,000 a year per employee. qatarsales
Since its inception in 2008, these four cities have dominated the Savills Live/Work Index top 12 world cities, representing the relative resilience of both the residential and commercial markets of more established global cities following the downturn compared to the more recently emerged new world cities, according to Savills in a new survey, 12 Cities, released today.
The index calculates the average costs per employee* of renting living and working space in 12 different cities around the world in US dollars. Fluctuations in overall live/work costs represent not only the intensity of a city's residential and office markets, as well as occupier taxes and costs, as calculated locally, but also the effect of fluctuating exchange rates on the global cost of doing business. This is one of the factors that has led to London's recent rise in the rankings.
Total real estate costs fell -5.6 percent in the first six months of this year, an annualized rate of -11.2 percent in dollar terms, thanks to a combination of declining residential rents and, most significantly, a weakening currency. The current average price of renting residential and office space in Hong Kong, according to the Savills Live/Work Index, is back to 2008 levels, at US$116,000 per employee per year.
In comparison, London real estate costs increased at an annualized rate of 10.6% in US dollar terms in the first half of the year, making it the most expensive city in the world to house workers, at US$121,000 per year. This was largely attributed to the recent strengthening of the British pound against the US dollar. Since 2008, the cost of residential and commercial property in London has risen by 39% in US dollars. Despite its rise in the rankings - from fifth to first place since 2008 - London is still a long way from Hong Kong's 2011 record of US$128,000 per year for live/work accommodation costs.
Hong Kong remains the only 'New World' city in the top five cities, representing a newly-emerged or developing national economy. Despite property market cooling steps, its location relative to mainland China's emerging markets means it is unlikely to lose this status in the near future. With prices 40% higher than London, the city remains by far the most expensive city in which to buy residential land, though the gap is closing.
Tokyo has dropped from third to fifth place in the rankings, as rents have been dropping or static since 2008, and have fallen by 23% in US dollar terms. However, Prime Minister Shinzo Abe's (Abenomics) economic policies have recently improved economic conditions and boosted rental growth. Although the yen's depreciation has made Tokyo's costs more competitive, rental growth continues to provide incentives for investors, especially local ones. Tokyo is significantly less expensive for businesses to locate in than any of the leading group of four cities, at US$76,000 per person.
On the other hand, comparatively inexpensive Rio de Janeiro and Sydney have seen substantial increases in live-work costs since 2008, up 85% and 58%
respectively, while Rio remains highly competitive at just US$32,000 per person. Mumbai remains the cheapest city in the world, with an annual cost of US$30,000 per citizen, down -21 percent in US dollar terms since 2008.
"This year, nearly all of our world cities have seen far more moderate real estate price rises, and some have seen slight falls," says Yolande Barnes, Director of Savills World Research. "As investor interest and business activity moves to second-tier cities, we expect this subdued pattern to continue." Because of the lower rate of price inflation, currency fluctuations have resulted in some of the most significant shifts in our rankings, which are expressed in dollars. Over the next year, this is likely to be more of a source of concern for multinationals looking at their local costs than property markets."