Sydney, LA and San Fran the best value for business
Analysing the combined value of real estate costs against economic productivity throws up some surprises in Savills latest Live/Work Index.
The Index, which measures the combined cost of residential and office rental per person per year, finds London, Hong Kong and New York are the world’s most expensive cities for companies to accommodate employees.
However, both London and New York real estate costs remain less expensive relative to economic productivity than Hong Kong, Shanghai and Mumbai.
Sydney, Los Angeles and San Francisco offer best value by this measure.
London’s Live/Work costs averaged US$118,425 in the first half of 2015, an increase of 20.7 per cent since the index was launched in 2008. This is marginally more expensive than Hong Kong, where costs have risen by just 0.4 per cent since 2008, and New York which has seen 28.4 per cent growth.
San Francisco has seen the biggest growth, up 59.8 per cent since 2008. The cheapest city in the index is Mumbai, where it costs just US$29,088 to accommodate an employee, up only 2.4 per cent since 2008.
Savills says accommodation costs are only part of evaluating real estate affordability. Comparing the per head accommodation costs to the per capita GDP of each world city in the index creates a ‘value indicator’.
Sydney and Los Angeles offer the best value live/work rent combination at 70 per cent and 80 per cent of per head GDP respectively, followed by San Francisco.
Mumbai is most expensive relative to city productivity at a very high five times per head GDP, reflecting the fact that most workers do not live and work in the international-standard accommodation that Savills measures.
The average cost per head across the 12 leading world cities in the Savills study is US$74,945 per year, which is 1.4 times the average city GDP per head of population.
According to Savills director of world research Yolanda Barnes (pictured) this measure of real estate affordability “gives a good indication of which cities may be fully rented if GDP does not rise and those which have greatest ability to absorb rising total accommodation costs, whether through office or residential rent increases.”
Three cities – Tokyo, Dubai and Singapore – have all seen live/work costs fall between -8.0 per cent and -16.6 per cent over the period since 2008.
“This reflects high growth and relatively high levels of rents seen in these cities prior to 2008. Cheaper rents will help correct affordability and may be seen as a competitive advantage on the global stage,” Barnes explains.
Download Savills 12 Cities: Occupying and investing in world city real estate.