London overtakes Hong Kong as most expensive place to live and work

London has become the world’s most expensive city for companies to locate employees, overtaking Hong Kong, which had previously topped the ranking for an unbroken five year period, according to latest analysis from the real estate firm, Savills.

New York and Paris complete the pack of four leading cities, where the combined costs of renting residential and office space top $100,000 per employee per year.

These four cities have dominated the Savills Live/Work Index top 12 world cities since its launch in 2008, reflecting the relative stability of both the residential and commercial markets of more mature global cities post downturn compared to the more recently emerged new world cities, Savills says in a new report, 12 Cities, published today.

The index measures the total costs per employee of renting living and working space in 12 world cities. Fluctuations in total live/work costs reflect the strength of a city’s residential and office markets and occupier taxes and costs, plus the impact of fluctuating exchange rates on the cost of doing business.

A combination of falling residential rents and a weakening currency has boosted Hong Kong’s competitiveness, with total real estate costs down 5.6% in the first six months of this year. Savills says that the average price of renting residential and office space in Hong Kong is now back to 2008 levels, at US$116,000 per employee per year.

Meanwhile, London real estate costs grew by an annualised rate of 10.6% in the first six months of the year, making it the most expensive world city in which to accommodate staff, at $121,000 per year. 

This was largely due to the UK pound’s recent appreciation against the US dollar. Overall, the US dollar cost of residential and commercial accommodation in London has increased by 39% since 2008. Despite its climb in the rankings, from 5th to 1st place since 2008, London is still a way off the accommodation costs record set by Hong Kong in 2011 – $128,000 a year. Hong Kong remains by far the most expensive city in which to buy residential property, with prices 40% higher than London, but the gap is narrowing.

Tokyo has sunk in the rankings from 3rd to 5th position as rents have fallen by 23% in US dollar terms since 2008. The economic policies of Prime Minister Shinzo Abe have spurred rental growth somewhat but, at $76,000 per person, it is much cheaper for businesses to locate in Tokyo than in any of the leading group of four cities.

Mumbai retains its position as the cheapest world city, at $30,000 per person per year, down 21% in US dollar terms since 2008.

Rio de Janeiro and Sydney have seen big increases in live-work costs since 2008, up 85% and 58% respectively, though Rio still looks highly competitive at just $32,000 per person.

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