Prime office markets globally are continuing to see increasing costs, with net effective costs across the SPOC markets increasing by 0.8% QoQ in Q3/2023. This is largely driven by rising fit-out costs in the United States and hides significant amounts of regional variation. On average, fit-out costs increased by 3.2%, with changes in the US driving the increase. Annual gross rents have stayed positive, increasing by 0.9% over the quarter as occupiers continue to favour best-in-class prime office space.

US office markets continue to see rising costs and rising vacancy rates, with average availability rates increasing by 90 bps since year-end 2022. Across the the US, total net effective costs to occupiers have declined by 0.7% during the third quarter. Fit-out costs remain elevated across the country, but rising concessions mitigate increasing costs in most markets. Miami stands in contrast, experiencing strong demand coupled with limited new supply, resulting in a cost increase of 10.7% in Q3/2023. In Miami, office fit-out costs have surged with a shortage of materials and labour in South Florida. Average gross rents across North America are also still rising, up 0.5% in the past six months for prime stock, but fierce competition for tenants and a reluctance to reduce rents is driving concessions higher. The ongoing flight to quality is also helping to support the top end of the market.

Tenant demand in Europe is being supported by the professional and business services sector, offsetting some of the declines from tech tenants and keeping vacancy rates steady. Across the EMEA region, net effective costs rose by an average of 2.1% in Q3/2023, driven by the flight to prime and the desire for occupiers to take up green-certified office spaces. Annual gross rents have increased by 1.1% QoQ, largely because of rises in Milan, Frankfurt, and Madrid. Dubai is also continuing to see new companies register to open offices in the city, with rising demand contributing to an increase of 1.2% in annual gross rents and an increase of 2.0% in net effective costs in the third quarter.

During a recent visit to Viet Nam, Paul Tostevin, Director of Savills World Research shared: “Last year, real estate investment had significant changes globally. Total global investment fell by 50%, especially in the office segment with a decrease of nearly 60%.”

According to Tostevin, most of these investment changes come from challenges in the US, which is undergoing a significant shift to hybrid working, causing increased office vacancy.

"This is the consequence of a dramatic change in working trends and a decline in the scale of required spaces within the IT industry. Although this pertains to the US and some Western countries, it is an important market that has an indirect effect on Europe and Asia Pacific, Tostevin continued.

Office markets in the Asia Pacific are continuing to remain the most stable of the regional occupational markets. However, total net effective decreased by 0.1% QoQ for the region. Declines in net effective costs in China and Hong Kong drove the decreases. New supply in China and Hong Kong resulted in rising vacancy rates, up 120 bps in China and 60 bps in Hong Kong, and put downward pressure on rents, which fell by 0.7% QoQ and 1.4% for the year.
Health, safety, and quality are the most essential considerations for all tenants, commercial buildings failing to satisfy these criteria for comfortable space or fresh air will bear the risk of competition with new buildings.

Increasingly, businesses are implementing environmental sustainability targets and goals to reduce carbon emissions. In Viet Nam, according to Savills Real Estate Market Report in Q3/2023, more than 85% of the fastest growing enterprises in Viet Nam have ESG commitments. This helps fuel demand for offices that meet green standards.

In Ha Noi, the market will welcome approximately 68,400 sq m of green-certified offices until the end of 2025 from Grade A projects such as 27-29 Ly Thai To, Grand Terra or Tien Bo Plaza. In HCMC, more than 80% of the city's future Grade A and B supply is expected to have green certifications.

Paul Tostevin commented: "Viet Nam has the opportunity to become one of the regional leaders in the field of sustainable development. Global investors are paying more attention to ESG. Therefore, the formulation of a comprehensive development strategy that incorporates sustainable environmental measures is imperative. In addition, social sustainability standards, policies safeguarding workers and assuring the implementation of safety measures during the project development process, immigration procedures, and site clearance are included.”

The expert added: “This is and will continue as an investor-oriented global trend. For them to buy an asset or develop a project in a new market, that location must satisfy specific criteria. An investment cannot be made in a location that fails to satisfy the fundamental ESG criteria outlined in the company's development policy.”

"This will also gain significance for real estate hire purchase companies, with a particular focus on multinational corporations seeking to incorporate it into their supply chains.Therefore, ESG factors will continue to spread and influence every aspect of the real estate industry. Countries must establish legal and policy frameworks that promote transparency for foreign investors," the Director of Savills World Research emphasised.