Many international organisations look at accommodation costs when making a decision about which city to locate in. Our league table of headline costs breaks out office rents for finance and business companies compared to firms in the creative sector.

But what the headline figures don’t show is the impact all real estate costs in a city will have on a business. If property taxes or other occupation costs are high, or if residential rents are high and reflected in wage demands, that will also have an impact on the bottom line.

We therefore thought it important to look at all real estate costs associated with our Savills Executive Unit. We have imagined the same seven people in two different types of organisation – a hedge fund (finance and business services) and a social media company (creative sector) – located in our 10 world-class cities.

This hierarchy is different to the headline rent hierarchy. It shows that New York is more expensive when residential and other costs are taken into account – and that Shanghai is cheaper.

The cost of office rents is very much less important in some cities than others. Total annual costs of accommodating the SEU in Hong Kong are over £650,000 per year, while Mumbai costs £157,000.

In Paris, for example, the costs of residential accommodation and other costs outweigh office rent by a substantial 87%. In Shanghai, in the case of the finance and business services firm, nearly half of total costs will be taken up by office rent.

In the creative sector, overall costs are cheaper, ranging from £135,000 in Mumbai to over £450,000 a year in Hong Kong.

While Hong Kong heads all our tables when it comes to cost of accommodation, New York is a particularly expensive city in which to locate a creative startup. London, on the other hand, is relatively cheap and belies its position as the second most expensive city in term of headline rents.

For creative businesses, office rents are almost insignificant compared to other accommodation costs, typically less than 20% of the total. Add the cost of attracting the human capital vital to such industries and it becomes apparent that office rents should not feature high on the priority list of locational decision-making.

Indeed, it is the quality of the human capital the cities attract that make them world class. The costs of accommodation reflect this rather than determine it.

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Taken from
Insights: World Cities Review Autumn 2012