US Office Costs Increase Amid Global Decline

CHICAGO—The average annual costs of occupying a workstation declined 3.9% in 2014, but there were tremendous differences between the globe's different regions, according to DTZ. The company just released its 18th annual Global Office Thermometer, which measures the cost of office occupancy in 138 cities worldwide, and found that on a US dollar basis, the Asia Pacific region posting the greatest decline, 8.3%, followed by Europe, the Middle East and Africa at 7.8%. A strong US economy, however, drove a 4.8% increase in North America, and Greater China posted a 2.4% increase.

“In many parts of the world, people are reconfiguring space to get more efficient,” Steven Quick, DTZ chief executive, global occupier services, tells GlobeSt.com, and that has certainly exerted downward pressure on costs in many markets. “Most of the clients we talk to are taking a hard look at that one way or another.” Still, the change in occupiers' costs seems to track quite closely with macro economic trends including the sharp depreciation of many local currencies against the US dollar.

“Europe is still pretty bleak,” he says. And the pessimistic outlook for that continent means occupier costs in the EMEA region will continue to stagnate. DTZ forecasts that costs will only rise on average 0.8% in 2015 and 2016. However, many markets with improving economic prospects and strengthening demand, such as London's West End, Dublin and Luxembourg, should see increases between 2% and 3%. “Overall, we expect global occupancy costs to increase just 0.5% over the next two years.”

North American cities with the greatest cost increases were San Francisco at 12%, San Jose and Houston at 9%, Calgary at 8%, and Minneapolis and Seattle at 7%. And although New York costs per workstation increased by 6% the “city's occupiers typically increased space utilization and decreased the amount of space allocated per workstation to offset the impact of rising rents,” according to the DTZ study.

But since DTZ expects office demand in the US will moderate in the next two years, occupancy costs in most major US cities should also moderate. And significantly slower demand in markets heavily dependent on the energy sector should push down costs in Houston and Dallas about 4% per year. Meanwhile, occupancy costs in Chicago and Washington, DC, should increase by 3% and 2%, respectively.

“Asia has been a bit of a mixed-bag,” Quick adds. The economy in Greater China remains vibrant, and on a local currency basis costs there increased by 4.3%. But in many cities, especially in Southeast Asia, costs declined. In Mumbai, for example, costs decreased by 30%, and in New Delhi, costs declined by 4%.

DTZ, however, expects this state of affairs will reverse somewhat in the next two years. The firm forecasts that the Asia–Pacific region will post a gain of 1.7% in 2015 and 2016, the strongest of any region, even though costs in Greater China are likely to remain steady. “Mainland cities are expected to be broadly unchanged or post falls, reflecting continuing new supply.” For example, “Shanghai costs are forecast to fall 1.6% per year.”