DTZ Research: Contrasting Fortunes in US and North Asia Enliven Flat Occupier Market

  • Average global occupancy costs increase by just 1% to US$7,495 per workstation during 2012
  • Mixed fortunes for occupiers globally – Beijing costs up 17.7%, while all US cities see reduction
  • London West End becomes the world's most expensive business district at US$23,500 per workstation
  • Secondary office space costs rose faster than prime due to demand from cost-conscious occupiers

LONDON, March 6, 2013 (GLOBE NEWSWIRE) -- DTZ, a UGL company today released its annual 'Global Occupancy Costs - Offices' (GOCO) survey revealing that the cost for companies to provide office space for their workers in North Asia increased by 6.3% during 2012, outstripping the global average increase of 1%. The sixteenth annual GOCO report highlights significant regional differences – while some markets saw sustained growth, others such as the US experienced weaker levels of demand due to economic and political uncertainty.

DTZ's report analyses the main components of occupancy costs per workstation across 126 business districts in 49 countries across the globe, ranking each location based on costs per workstation per annum. It includes rents and outgoings, such as maintenance costs and property tax, and takes into account variability of space utilisation standards by measuring costs on a per workstation basis rather than just per square metre.

The United States offered occupiers the greatest opportunities to reduce their overheads in 2012, with occupancy costs per workstation falling by 10.9%. This was driven by an 11.8% decrease in space utilisation – the amount of space each worker is allocated – with the biggest decreases recorded in Washington DC (-17%) and Los Angeles (-14%). Even with the move to greater space efficiency, the US still has the most space per employee on average.

While growth was recorded in Central & South America (0.6%), Europe (0.9%) and Middle East & Africa (1.4%), this remained below the global inflation rate of 3.2%. In contrast North Asia (at 6.3%) and South Asia (3.7%) witnessed growth above the global inflation rate, due primarily to strong domestic consumption and activity from non-financial sectors eager to tap into the region's brighter growth prospects. Increases in these regions were driven by Beijing and Jakarta (at 17.7% and 20.7% respectively).

Karine Woodford, Head of Occupier Research at DTZ, commented: "The US was undoubtedly one of the stories of the year, with occupancy costs per workstation falling in every city. Demand for space was low, reflecting a sluggish labour market and weak corporate sentiment, but the biggest reason for the decline was a trend across the board for greater space efficiency. We do however expect US occupancy costs to increase over the next two years, albeit at a muted rate compared to elsewhere in the world.

"Elsewhere, there will be opportunities in the next two years for occupiers seeking to establish Asian operations in Kuala Lumpur and Singapore, where we anticipate costs to fall by 1.3% and 0.7% respectively. However, it should be noted that vacancy rates in Singapore are currently at their lowest level since 2008, and we expect costs to rise steadily over the longer term."

Growth in North Asia wasn't without exception as costs decreased by 12% in Hong Kong Central (from US$25,160 in 2011 down to US$22,190 in 2012). This was due to rental declines, where occupiers sought to reduce operating costs through downsizing or moving outside the core.

This resulted in Hong Kong, 2011's most expensive business base, being overtaken by London West End as the least affordable market globally. Occupiers in London West End had to pay US$23,500 per workstation per annum which is more than three times the global average. The most affordable office market is Surabaya (US$1,610), as it was in 2011, followed by Hyderabad and Chongqing.

As well as prime office space, DTZ also analysed occupancy costs per workstation for average-grade buildings in 14 major centres in Europe and Asia. Driven by increased demand from cost-conscious occupiers, secondary occupancy costs rose by 4.2% year-on-year – above global inflation and four times the rate for prime. The difference in occupancy costs between secondary and prime office space also varied hugely across the different markets, with prime anything from 17.5% more expensive (Stockholm) to 131% more (Shanghai).

Karine Woodford said: "In the current economic climate, occupiers are increasingly looking at alternatives to prime office space. The biggest differences can be seen in Shanghai and Moscow, where occupying prime costs over 100% more than taking space in an average grade building. In markets such as Stockholm, London City and Sydney the difference in cost in occupying prime compared to secondary is less pronounced, although cost savings of at least 20% can be achieved. London West End is the least affordable location in the world for occupying both prime and secondary office space."

The GOCO report also looks ahead at occupancy costs for the next two years under three different scenarios: base case (policy makers do enough to avoid a deep recession), downside (based on a multiple eurozone exit) and upside (a global corporate reawakening). Under the base case scenario, global occupancy costs are expected to increase by 2.3% over the next two years, with occupiers in North Asia witnessing the highest growth rate – at levels above the global inflation average in both 2013 and 2014.

Under the downside scenario, European markets show a sustained period of rental decline, offering cost savings for tenants. In Asia Pacific, the impact is felt more dramatically with costs rising by 1% instead of 5% under base case which provides a window of opportunity for occupiers to re-negotiate leases before rental growth accelerates. However, under the upside scenario, Asia Pacific is the region which shows the largest increase (8%) in rents, whilst both Europe and the US are expected to experience more muted growth.

About DTZ

DTZ, a UGL company, is a global leader in property services. We provide occupiers and investors around the world with industry-leading, end-to-end property solutions comprised of leasing agency and brokerage, integrated property and facilities management, capital markets, investment and asset management, valuation, building consultancy and project management. In addition, our award winning research and consulting services provide our clients with global and local market knowledge, forecasting and trend analysis to make the best long-term decisions for their continuous success far into the future. DTZ has 47,000 employees including sub-contractors, operating across 208 offices in 52 countries. For further information, visit: www.dtz.com

About UGL Limited ABN 85 009 180 287

UGL Limited (ASX:UGL) is a global leader in outsourced engineering, property services and asset management and maintenance delivering essential services that sustain and enhance the environment in which we live. UGL comprises three business units including Engineering, Operations & Maintenance and Property providing services across the power, water, rail, resources, transport, communications, defence and property sectors. Headquartered in Sydney, Australia, UGL operates worldwide across 52 countries employing over 56,000 people.

For more information, visit: www.ugllimited.com

CONTACT: FOR FURTHER INFORMATION CONTACT: John Wickes Executive Vice President DTZ, a UGL company + 312 424 8087 John.Wickes@na.ugllimited.com Karine Woodford Head of Occupier Research DTZ, a UGL company +44 (0)20 3296 2306 karine.woodford@dtz.com Media please contact: Richard Lindberg +312 424 8172Source: DTZ, a UGL company