Everyone’s always complaining about the high cost of commercial real estate in the U.S. Cities like New York or San Francisco are regarded as top-tier, uber-expensive office markets, where the competition for quality space is intense and the supply is low. Industry experts keep comparing the Northeast to the West Coast and compiling lists of the priciest office markets in the country–with Manhattan usually nabbing the top spot. However, if we were to extract a list of the priciest office destinations in the U.S. and compare them with those outside the U.S., some big differences would show up.
That’s exactly what we set out to do in this analysis–see how the priciest U.S. cities stack up against those outside the country, and find out whether we’re right to lament the high cost of office space here on American soil. Using as a starting point a recent analysis of the world’s priciest office locations conducted by CBRE, as well as Cushman & Wakefield occupancy metrics, we set out to see if U.S. office markets are really that expensive, from a global perspective.
Manhattan Office Rents 75% Cheaper Than in Hong Kong
CBRE’s semi-annual ranking showed that Central Hong Kong remains the most expensive office destination in the world. Here, the average annual rental rate is $269 per square foot–equating to $22 per square foot per month. Hong Kong seems to be in a league of its own, as office rates here are 55% higher than those in Beijing, the second-priciest city, and 75% above average rents in Midtown Manhattan–the third contender on the global list (we decided to tweak the initial list compiled by CBRE and keep only the most expensive entry for each city–e.g. we kept Central Hong Kong and eliminated West Kowloon).
What’s interesting to notice is that, out of the world’s 10 priciest cities for office space, only 3 are located in the U.S. Midtown Manhattan and San Jose, Calif., are also the only 2 U.S. destinations to boast annual per-square-foot office rents above the $100 mark. The 10th spot is occupied by Greenwich, Conn., which commands an average of $91.55 per square foot in yearly office rents.
Beijing’s Finance Street commands an average of $174 per square foot in annual office rents, landing it the title of the world’s second most expensive office target. Rounding out the top three is Midtown Manhattan, boasting an average of $153.5 per square foot in annual rents–thus making it the priciest city in the U.S. However, the yearly rent in Midtown Manhattan is 75% lower than the annual rent fetched in Central Hong Kong–so maybe New York City isn’t quite as expensive as we think it is. Sure, compared to other cities in the U.S., the Big Apple commands much higher office rents; nonetheless, so does Hong Kong when compared to other Asian or European markets. It might be easier to get the full picture if we compare them side by side, U.S. versus non-U.S.
As we now know, New York City’s Midtown Manhattan boasts the highest office rents in the U.S., with tenants shelling out an average of $154 per square foot each year. The second-priciest U.S. office cluster is, perhaps unsurprisingly, Silicon Valley–particularly San Jose. Annual office rental rates in the ‘Capital of Silicon Valley’ have reached $111 per square foot–making San Jose the only city outside New York where yearly office rents surpass the $100 mark. Even so, office rents in San Jose hover 28% below those fetched in Midtown Manhattan, and are 36% lower than those commanded by Beijing’s Finance Street.
The third most expensive city in the world, as far as office prices go, is London (namely the West End), where annual office rents have reached $136.38 per square foot. Coincidentally, the third-priciest office destination in the U.S. was named after one of London’s boroughs. Greenwich, Conn., home to a plethora of hedge funds and financial companies, and one of Money Magazine‘s ‘Best Places to Live in 2016,’ commands an average annual office rent of $91.55 per square foot. Located in Fairfield County, just 30 miles north of Midtown Manhattan, Greenwich is a popular–and pricey–destination for individuals and corporations alike. According to Money, the median home price in the city is close to $1 million. Yet when we put the two contenders side by side, we see that annual office rents in London’s West End are 49% higher than those recorded in Greenwich, making London the 4th most expensive office city in the world, and landing Greenwich the 10th spot.
$10K Will Get You 57% More Office Space in San Jose Than in Beijing
To get an even better picture of the cost differences between the U.S. office market and the global office scene, we looked at what a $10,000 budget would get you in each of the cities listed above. In Manhattan, this kind of budget would get you a mere 782 square feet of leasable office space (or 73 square meters), and in that space, you’d be able to fit a maximum of 5 employees. For that same budget, you could lease up 1,081 square feet (100 square meters) of office space in San Jose, Calif., to fit a maximum of 7 employees. Obviously, if we compare the cost of leasing office space in Midtown Manhattan to the costs commanded in other U.S. cities, we’ll notice that the Big Apple stands out from the crowd, boasting the highest prices. But what if we zoom out and look at the global picture?
Comparing the most expensive office cluster in the world (Central Hong Kong) with the most expensive city in the U.S. (New York City) shows a big difference in leasing prices. A $10,000 budget will get you 43% more leasable office space in Manhattan than in Hong Kong, and 57% more space in San Jose than in Beijing. Going further down the list, the differences become even more noticeable: office space in Paris is 45% more expensive than in Miami, while in Chicago, a $10,000 budget will get you 64% more space than in Dublin. Finally, the 30th most expensive U.S. office target, Tampa, offers 56% more office space than Edinburgh, for the same budget. Check out how each city fares below:
Conversion rate for $1 USD / square foot = 8.67106272 EUR / square meter – as of January 2018.