London is now cheaper for businesses locating their employees from overseas due to Brexit, offering significantly better value than New York and Hong Kong, new research has found.
It means that the gap between the UK capital and a second tier of cheaper cities including Paris, Tokyo and San Francisco is far less pronounced, according to the study from international real estate firm Savills.
This time last year London was the most expensive world class city for international businesses to rent office and living space for their employees, but the devaluation of sterling means it now ranks closer to Paris and Tokyo.
This leaves the two most expensive cities for expat employees, New York and Hong Kong in a league of their own with much higher accommodation costs at US$111,900 and $105,400 respectively with London in third place at $88,800.
The impact of Brexit, driven by the fall of Sterling means that London is now 10% cheaper for accommodation costs per worker than it was in December 2008, the Live Work index shows.
At the same time, Hong Kong has continued to close the gap on New York, as new stamp duty charges implemented in November encouraged more people to rent rather than buy and caused a demand shock and living and working costs increased by 4% in the second half of 2016.
New York remains twice as expensive to locate employees as in rival US city of Los Angeles and 71% pricier than San Francisco. Similarly, Hong Kong is well over twice the price of rival Asian world class cities Singapore and Shanghai.
The gap between London and Paris has closed from over $24,000 per person per year to under $14,000. However, Dublin and Berlin, both often cited as potential post Brexit alternatives to London, still represent savings of over $40,000 and almost $60,000 respectively, and this despite robust rental growth in Dublin across both residential and commercial sectors.
‘The real test of whether a city is good value for occupiers lies in how productive an organisation can be in that city and how competitive a city is in attracting human capital to its job market,’ said Yolande Barnes, director of Savills World Research.
‘In many cities, the cost of office accommodation pales into insignificance against the cost of personnel and residential rents will impact wage demands, hence the inclusion of housing in our live-work index,’ she added.
On average, residential costs make up 75% of the total accommodation costs recorded in the survey and in some cities, like Dubai, Dublin and Paris, they are over 84%.
‘While accommodation costs are only a small part of a company’s decision making process when choosing where to locate teams of staff, this analysis is a guide to the shifting relationship between world cities on an annual basis,’ Barnes explained.
‘Cities may become more or less competitive on a short term basis but it is their long term costs that need to be taken into consideration when signing leases or building accommodation,’ she pointed out.
‘For successful organisations, business location is a long term play, not a short term decision so sound business fundamentals are of course far more important than decisions based on the cost of accommodation at a given point in time. London’s relative advantage may be eroded if sterling rallies but our view is that the appeal of London as a world city will continue,’ she concluded.