The JLL Global Premium Office Rent Tracker

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Clementine Moore
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1 The JLL Global Premium Office Rent Tracker Q Globalisation and city competition We are in a new era of city competition, where cities are fighting to secure the world s most dynamic corporations, attract the best talent and pull in footloose capital. Increasingly, the commercial real estate sector is playing a pivotal role in this battle as the combined forces of globalisation and technological disruption reshape the world s urban hierarchy and urban form. The Premium Office Rent Tracker Provides a snapshot of the rarefied world of the premium office market. While only a fraction of a city s corporate base will pay such premium rents, the tracker does benchmark office occupation costs on a like-for-like basis. It provides a useful barometer of relative city attraction, as well as highlighting the intense strains that many cities are now facing as their real estate markets try to accommodate growth. Trophy assets, premium rents, top companies Perhaps nowhere is this intense competition between cities better epitomised than in the demand for premium office buildings in the world s most prestigious commercial office districts. To capture this dynamic, JLL s Premium Office Rent Tracker compares occupancy costs across a broad range of the world s major cities. In this first edition, our focus is on office occupation costs across 24 cities of differing function and evolution, ranging from Established World Cities (such as, and Tokyo) through to Emerging World Cities (like Shanghai, Moscow and Mumbai) and New World Cities (as typified by San Francisco, Boston and Toronto). The Tracker includes the key elements of occupancy costs net effective rent, service charges and property tax all standardised to enable true international comparisons.

Increasingly, the commercial real estate sector is playing a pivotal role in this battle as the combined forces of globalisation and technological disruption reshape the world s urban hierarchy and

2 Premium Office Rent Tracker (US$/s.f./year) Hong Kong Beijing Shanghai Tokyo San Francisco Moscow Delhi Dubai Mumbai Washington DC Paris Boston Los Angeles Frankfurt Seoul Chicago Sydney Toronto Houston Madrid Amsterdam Net rent Additional costs The most expensive office locations (US$/s.f./year) HONG KONG No.1 $262 LONDON No.2 $240 BEIJING No.3 $199 NEW YORK No.4 $171 No.5 $136

/year) 0 50 100 150 200 250 300 Hong Kong Beijing Shanghai Tokyo San Francisco Moscow Delhi Dubai

3 World s most globally connected cities top the rank Predictably the world s three most globally connected cities Hong Kong (1st), (2nd) and (4th) command among the world s highest costs and they continue to inflate on the back of strong tenant demand combined with severe shortages of high quality space. For example, vacancy rates are as low as 1.2% in Hong Kong Central, 2.6% in s West End and 6.3% in s Midtown South. While it comes as little surprise that these cities top the global rank, issues of affordability and the inadequate provision of quality commercial space are coming to the fore. In order to remain competitive, these cities will need to execute bold urban transformation projects to ensure a supply of appropriately priced and flexible commercial space for their vibrant and innovative city economies. Low vacancy rates in world s premium office markets PUDONG 4.0% SINGAPORE RAFFLES PLACE 2.8% LONDON WEST END 2.6% TOKYO MARUNOUCHI 2. 2% HONG KONG CENTRAL 1. 2% Emerging World Cities make their mark Competition from several Emerging World Cities is heating up, with China s Alpha cities Beijing (3rd) and Shanghai (5th) fast-tracking to maturity and extending their global business networks. This city duo is showing a remarkable capacity to absorb high levels of additional office space, supported by the growth of a new breed of domestic private companies. This is reflected in occupancy costs that are now ahead of the Established World Cities of Tokyo (6th) and Paris (14th), as well as (11th), where new supply is helping affordability. BEIJING

6% in s West End and 6.3% in s Midtown South.

4 Technology and the rise of New World Cities Premium office buildings have typically been the domain of financial and professional services, but more recently the Technology, Media and Telecommunications (TMT) sector has been muscling into this space and increasingly driving demand in premium buildings in cities like and. The strength of the TMT sector is particularly apparent in New World Cities like San Francisco (7th), a city with strong technology credentials that is showing among the world s fastest uplift in office occupation costs. It is worth noting that a number of New World and Challenger Cities like Boston (15th) and Sydney (20th) offer significant cost advantages over Established World Cities. The total office occupancy cost advantages of New World City challengers (US$/s.f./year) $80 $70 $60 $73 $68 $61 $60 $59 $55 $43 $50 $40 $30 $20 $10 BOSTON FRANKFURT CHICAGO SYDNEY TORONTO HOUSTON AMSTERDAM Our approach JLL s objective is to provide a robust like-for-like comparison of office occupancy costs based on the expertise of JLL s leasing market professionals in each city using the following criteria: The rents refer to the top achievable in units over 10,000 square feet (or approximately 1,000 square metres) in the premium building in the premier office district of each city. In tall buildings, the middle zone is used as the benchmark. We exclude rents that represent a premium level paid for a small quantity of space or highly prestigious units where a significant premium applies. Rents are standardised on a Net Leasable Area basis and adjusted to take into account tenant incentives/rent free periods. Service charges and local property taxes (e.g., additional costs) are added to allow direct comparison of full occupancy costs between cities.

The strength of the TMT sector is particularly apparent in New World Cities like San Francisco (7th), a city with strong technology credentials that is showing among the world s fastest uplift in

5 The JLL Global Office Leasing Group (GOLG) is the world s most connected global office team providing our clients with powerful insights and knowledge. We work together to successfully connect landlords and tenants in offices across the globe. Contact any of the team to find out more. Americas Gavin Morgan Vice Chairman gavin.morgan@am.jll.com Gregory Green Head of U.S. Agency Leasing gregory.green@am.jll.com Steve Smith Regional Leasing Director Chicago steve.smith@am.jll.com Asia Pacific Chris Archibold Head of Commercial Leasing chris.archibold@ap.jll.com Tim O Connor Head of Australia Leasing Sydney tim.oconnor@ap.jll.com EMEA Neil Prime Head of UK Office Agency neil.prime@eu.jll.com Marie-Laure de Sousa Head of France Office Agency Paris marie-laure.desousa@eu.jll.com International Desk Valentin Stobetsky Managing Director valentin.stobetsky@am.jll.com Jeremy Kelly Director Global Research jeremy.kelly@eu.jll.com Megan Walters Head of Research Asia Pacific Capital Markets megan.walters@ap.jll.com Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.

com Gregory Green Head of U.S. Agency Leasing gregory.green@am.jll.com Steve Smith Regional Leasing Director Chicago steve.smith@am.jll.com Asia Pacific Chris Archibold Head of Commercial Leasing chris.

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