London pips HK as costliest city to rent homes and offices

London has become the world’s most expensive city for companies to locate employees, overtaking Hong Kong, which had previously topped the list for an unbroken five-year period, according to property consulting group Savills.

Singapore is in sixth position in the latest ranking of 12 global cities as at June 2014 – unchanged from the December 2008 list.

Savills compares the cost of renting living and working space for a group of employees in the financial sector and the creative industry, stated in US dollar terms.

The total costs for each city reflect not only the strength of its residential and office markets and the level of occupier taxes and costs (such as service charges), measured at the local level, but also the impact of exchange rates on doing business on a world stage, Savills said. “It is this that has contributed in large part to London’s recent ascendency in the rankings.”

A combination of falling residential rents and, more importantly, a weakening currency has boosted Hong Kong’s competitiveness, with total real estate costs down 5.6 per cent in US dollar terms in the first six months of this year – translating to an annualised drop of 11.2 per cent. The Savills Live/Work comparison shows that the average cost of renting residential and office space in Hong Kong is back at 2008 levels – US$116,000 per employee per year.

In contrast, London real estate costs grew at an annualised rate of 10.6 per cent, which means it is now the most expensive world city in which to station staff, at US$121,000. This was largely due to the pound’s recent appreciation against the dollar.

Overall, the US dollar cost of residential and commercial rental accommodation in London has climbed 39 per cent since 2008. Despite its rise in the rankings, London is still some way off the record set by Hong Kong in 2011, US$128,000.

In Savills’ previous study, in December 2013, Hong Kong was the most expensive global city, at US$123,000. London came next, at US$115,000.

Singapore is sixth in the June 2014 study, at US$75,000. This is a notch below the December 2013 ranking, when the republic came in at US$76,000.

Yolande Barnes, director, Savills World Research, said: “The accommodation cost difference between Hong Kong and Singapore is sufficient to influence locational decisions, whereas that between London and Paris possibly isn’t.” She stressed that “cost will never be the sole consideration as to where you set up business. Other key factors include the presence of financial institutions, the right mix of partners and customers, and right governance and legislation.

“Also important is where your employees want to live. A lot of people would like to live in London and New York – although they are more expensive than Dubai or Mumbai.”

In its report released on Wednesday, Savills noted that despite slower economic growth, Singapore’s diversified economic base underpins a robust office sector. As a result, rents rose 7.3 per cent in the first half of the year – second only to Dubai in Savills’ study.

Savills also noted that limited space, increasing wealth and a growing workforce will put pressure on land. “There may be relocation of lower value industries to Malaysia, where land, property and wages are cheaper. Singapore is set to become more rarefied, with Singaporeans protected by government access to housing.

“Employers will find it more difficult to attract and retain young talent from abroad because of the high cost of real estate.”

That said, Singapore has high-tech infrastructure and according to the World Bank, ranks as No 1 for ease of doing business, the report added.

Meanwhile, New York emerged third on the list, at US$108,000. This is an 18.1 per cent rise from December 2008, when the city was fourth.

Paris is No 4 this time around, compared with No 2 in 2008.

Tokyo too has become more competitive, taking fifth place at US$76,000, down 22.7 per cent from 2008, when it was No 3.

Savills’ study compares the cost of housing a group of seven people – a middle-aged expatriate CEO, a senior expatriate director, a locally employed director and four locally employed administrative staff – living and working in different countries.

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