Rental growth for prime office space* worldwide accelerated in the first quarter of 2025.
Rents rose by 0.6% on average compared to the previous quarter, after an increase of 0.3% in the fourth quarter of 2024, Savills said. Expansion costs also increased, rising by 0.7% (+0.2% compared to Q4 2024) in the same period, as demand for first-class office space continues unabated.
According to Savills' latest Prime Office Costs Report, average net effective costs (rent plus fit-out costs) increased by 0.5% in the first quarter. Increases were recorded in 21 of the 40 cities surveyed, continuing the moderate upward trend of the past twelve months (+3.3%).
The international real estate consulting firm notes that the costs of first-class office space develop differently in the three regions of the world. In Asia-Pacific, effective net costs remained broadly stable with an increase of 0.1% in the first quarter after prices in China fell due to the subdued economic outlook. However, the other APAC markets saw growth, including Mumbai with a 5.2% increase amid very low vacancy rates.
In EMEA, costs increased at an above-average rate, with net effective costs for tenants increasing by 1.9%. Riyadh, Dubai, Paris and Frankfurt all saw increases of over 4.0% in the first quarter, with the latter city seeing the largest quarterly cost increase of all 40 cities surveyed by Savills at 7.4%, reflecting continued demand for premium space.
Dr. Dennis Worch, Lead Global Occupier Services at Savills Germany, reports: "The significant increase in costs in Frankfurt is mainly due to increased rental prices. Many companies use new leases specifically to improve the quality of their space – be it in terms of location, building equipment or sustainability standards. This focus on high-quality office space is driving demand for premium space, which at the same time is hardly available at short notice."
In North America, effective net costs fell by 0.8% on average as higher vacancy rates put pressure on most markets. The exception is the Century City neighborhood of Los Angeles, where net effective costs increased 4.2% in the first quarter due to continued high demand and rising equipment costs in the quarter. In some U.S. cities – such as Chicago – Savills says the lower net effective costs are not due to falling rents or lower fit-out costs. Instead, landlords have increased their contributions to the expansion, which has reduced the net costs for users accordingly.
Rick Schuham, CEO of Global Occupier Services at Savills, comments: "The market for high-quality office space continues to show a moderate increase in net effective costs globally. Although some US cities are reporting falling prices, more generous landlord subsidies mask the continuing rise in the costs of renting prime space. The demand for premium space remains unbroken – and the supply is far from sufficient to meet it. We do not expect a short-term trend reversal."
Sarah Brooks, Associate Director in Savills' World Research Team, adds: "While the development pipeline for prime office space globally remains low overall and continues to drive up rents, some new prime buildings are emerging in most markets. The pipeline is largest in the cities of the Asia-Pacific region. In many cities that we observe in this region, five or more new first-class buildings are completed or planned. But here, too, a slight increase in supply is unlikely to be enough to slow down rising rents and equipment costs."
*The term "prime" is used to describe the top tier of "Grade A" office space in a market, i.e. usually the office space for which the highest 5-10% of rents in that market are asked: the term is more commonly used in the EMEA and APAC regions, while in the North American markets the term "trophy" is preferred to describe the same space. Grade A offices are the most modern offices, usually new or recently renovated spaces, that offer the best facilities, a high level of sustainability and modern infrastructure, and are centrally located.
