The measure of success

We reveal why annual costs can be very different to headline capital values.

18 September 2013, Words by Paul Tostevin


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The annual cost of locating in a world city can be very different to the capital value of real estate in that city. As a corporate employer relocating across the globe, the cost of rent and annual outgoings is a more important and telling measure than the more commonly quoted headline rent or capital cost. Our total cost measure is more likely to reflect the total outgoings that companies will actually need to accommodate all staff in the workplace and accommodate expat staff residentially as well as rewarding and accommodating other workers with expectations of certain types of housing. We think that it is one of the more important measures of city competitiveness and value.

We measure the total annual rent and occupation costs (including local taxes, service charges etc.) for both residential and offices for 14 employees plus households. Seven are employed in financial services and seven in a creative (tech start-up) industry. Each group therefore occupies a different type of office building and location but both contribute to our total costs measure.

The highest total costs are $1,625,000 per year in Hong Kong and the cheapest is Mumbai at $444,000 per annum. London is no longer the second most expensive city for annual costs in the world, having just been overtaken by New York this year. The annual cost of locating 14 people in the Big Apple is now $1,553,000, compared with London’s $1,533,000.

How expensive a city’s costs are to bear in relation to the revenue likely to be driven out of that city are harder to measure, but relating city costs to average annual GDP per capita goes some way to illustrating how sustainable those costs might be.

The figures below show how Singapore’s costs, although ranked 6th in the world, are the cheapest of all the world cities in relation to the gross domestic product per head in that country. In other words, the revenue that a corporation is likely (not guaranteed) to drive out of a business located in Singapore is much higher in relation to its employees’ real estate costs than in any other of our world cities.

While Hong Kong is still expensive by this measure, real estate costs are actually cheaper in relation to GDP per head than in Mumbai which, although it has the lowest absolute costs, is still expensive in relation to the economic product produced in that city.

Unlike capital values, the total cost measure shows less difference in growth between cities over the past five years than the capital growth of real estate in the same cities. Our total real estate cost measure has grown by just 2.1% since December 2008, having fallen by 10% in 2009 and risen by 14% since then.

‘New world’ city costs on average fell more since 2008 than ‘old world’ cities, by -17%, against -5%. New York has seen the biggest changes in total annual real estate costs, which fell by -12% in 2009 and then rose by 36% on the back of high rent rises.

New York total costs are now 19% higher than they were at the end of 2008. At the other extreme, Tokyo has seen the biggest reduction in total costs, which have fallen by -15% since the end of 2008.



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Key Contacts

Yolande Barnes

Yolande Barnes

World Research

Margaret Street

+44 (0) 20 7409 8899


Paul Tostevin

Paul Tostevin

Associate Director
World Research

Margaret Street

+44 (0) 20 7016 3883