Fit-out costs have increased by an average of 10% in major office markets worldwide, according to Savills Prime Office Costs (SPOC) analysis for Q3 2022.
The overall total expenses for office occupiers are also rising due to rising rents in many markets.
The EMEA area, specifically Dublin (+7%), London City (+5%), and Berlin (+3%), has witnessed the most of the growth in net effective expenses (including fit-out costs, rents, and other costs) over the quarter.
Savills estimates that fit-out cost inflation in the EMEA region averaged 14% year-on-year, as global supply chain problems impact markets.
Low vacancy rates, index-linked rental increases, energy costs, and index-linked rental increases have all led to 6% average increase of gross rents over the past year in EMEA prime CBD office markets.
Additionally, as expansion and renovation activities are slowed down by growing costs, there are fewer prime, sustainable office premises available.
This is contributing to the establishment of a green rental premium, which has already reached 10% in European markets like the Netherlands.
Matthew Fitzgerald, director of Savills EMEA tenant advisory team, commented: ‘The last quarter is when occupiers have really started to feel the effects of rising inflation in both fit-out and rental costs, particularly in EMEA which is recording the highest average rises in both. Rental markets are more or less exposed to inflation irrespective of the economic situation in individual countries; because the legal framework for leasing commercial property will vary by location, occupiers should explore ways to mitigate rising costs either through the regulatory framework of the country concerned or the existing lease.
'It’s unfortunate that these price rises come at a time when more needs to be spent on ‘green’ buildings and retrofitting existing stock to match the demand for more sustainable property, which creates complexity when considering long-term options.’