Tenant companies increasingly favor environmentally friendly spaces in centralized offices
CHICAGO, December 1, 2021 – High-end office spaces around the world are being redefined due to the high demand for sustainable and healthy buildings. According to JLL’s Premium Office Rent Tracker research report covering 127 office markets and submarkets in 112 cities, a large number of high-end office buildings surveyed – 84% – have environmental sustainability certification such as LEED or BREEAM, references widely used for green buildings. In high-end markets, this number climbs to 100%, underlining the shift towards environmental awareness of owners who have applied for certifications and tenants who have chosen to occupy green buildings.
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Another essential feature for tenant businesses looking for high-end office space? An urban core location. Despite the global impact of the pandemic on the office market, rental performance has remained strong in the main central business districts of leading cities around the world over the past year.
The report results show that the rental rate gap between primary and secondary or decentralized submarkets widens further in gateway cities such as Hong Kong, New York, Beijing and Tokyo, as occupier companies continue to grow. favor city centers. This corporate interest and steadily rising occupancy costs have led New York’s Midtown to tie in with Hong Kong Central as the world’s most expensive office submarket. Beijing’s Finance Street, London’s West End and Silicon Valley round out the top five.
Basic and decentralized rental rate differentials have also widened significantly in several other cities. Los Angeles and Delhi, for example, saw an increased difference of 11 ppts between primary and secondary rents compared to a year ago.
âWhile urban cores have struggled to stay relevant during the height of the pandemic, due to blockages and the shift to remote working, many central business districts rich in amenities are now bouncing back with new energy and new goal. The resilience of rents in high-end buildings demonstrates the strength and importance of urban core locations to businesses, ânoted Jeremy Kelly, senior director, Global Cities Research at JLL.
Still, affordability remains a concern in leading cities, and the growing rental gap means secondary locations have become more affordable compared to primary submarkets. On average, there is a 40-50% discount between the location of the main office and secondary or decentralized business districts in the 10 major cities covered by the report.
Demand for Sun Belt in the United States is increasing while demand in a handful of Asian cities is subdued
Other findings from the report indicate that demand for Sun Belt in the United States has solidly recovered after the 2020 shutdowns relative to other office markets. Miami, Los Angeles and Houston each gained at least eight places in the office occupancy cost rankings from the previous year.
Asian cities, on the other hand, have faced some volatility as COVID-19 outbreaks and accompanying government-imposed restrictions swept across the region and hampered demand for office space. Tokyo, Manila and Bangkok are among the Asian hubs that have seen rental rate drops compared to the previous year.
Technology and Professional Services Firms Drive Rates Up
The banking and financial services industry continues to dominate the demand for high-end office rental space globally. Tech companies, especially those specializing in online platforms, come in second, representing demand in 17% of the most expensive markets where prices exceed $ 100 per square foot per year.
Professional and business service companies are also a major player in the high-end office market, driving high-end rents in 17% of the markets. Affordable markets with prices below $ 60 per square foot per year experienced the highest demand in this sector, accounting for demand in 20% of these markets.