New York has surpassed London as the world’s expensive city in which to employ workers, despite recent indications that office and residential rent growth is slowing, according to a new study by international brokerage firm Savills.
Savills analysts attributed the shift in part to the impact of a dip in the value of the British pound following the EU Brexit referendum, which has reduced tenant costs by approximately 11 percent in the British capital since the start of the year.
The total annual cost in New York, at $114,010, is also far more expensive for tenants than Hong Kong at $100,984 and nearly twice the price of San Francisco, at $66,268. London, which held the top spot on Savills’ list of international cities for more than two years, checked in at $100,141. Those numbers are based on the cost of living in rented housing and working in an office for one year.
“The reason these cities are so expensive is that they’re so productive for a lot of businesses,” said Yolande Barnes, director of world research at Savills. “They are where you’ll find all the talent all the other businesses and all the lifestyle you need to make your business work. Accommodation costs can pale into insignificance against these considerations.”
Rents for New York City office properties have begun to flatten but the overall costs of living and working in New York were still 2 percent higher in the first half of the year, compared with the same period in 2015, Savills data show.
These shifts, while seemingly small, can mean a lot to companies looking to hire employees in major cities, said Barnes.
“Office-based businesses operating in major world cities will spend around one-third of their total operating costs on accommodation through a combination of commercial rents, paid directly to landlords, and demands on salaries created by the cost of employees’ living accommodation,” she said. “Fluctuations in these costs will therefore have a significant bearing on how competitive a city is to employers.”
There does look to be some relief in store for New York City employers, however.
While effective office rents in Manhattan rose by 4.07 percent from the beginning of the year to $67.44 per square foot, there was an uptick in the number of concessions being offered to new tenants. Year-over-year, concessions grew 22.26 percent, while asking rents climbed 14.04 percent, according to CompStak.
For rental apartments, the vacancy rate hit 2.2 percent in June, the highest in the past four years. Landlord concessions were offered on 9.7 percent of leases, double the number for the same period last year.
Barnes expects companies and workers to increasingly seek out areas like Jersey City Heights and Queens, where they remain connected to the city but pay cheaper rents.