Savills: ‘proximity premium’ for offices close to major stations

Offices located close to a major station can command higher rents, a ‘proximity premium’ of 6,7% on average in key cities in the world, according to new global analysis by Savills.

A regression analysis to assess how distance from a major transit hub affects prime office rents in New York, London and Tokyo found that offices in Tokyo demonstrated the highest premium, with every five minutes closer to either Shibuya or Tokyo station adding an average of 13% to office rents. Taking Tokyo Station alone, the effect was even more pronounced, with rents climbing 17% for each five-minute reduction in walking distance.

In London, prime offices within a one-mile radius of Liverpool Street station saw a 4% increase in rent for every five minutes they are closer to the station, and in New York proximity to either Grand Central or Penn station added a 3% rental premium.

This mirrors the results of a survey of office developers, investors and occupiers carried out by Savills: 70% of respondents ranked being close to a transport hub as the most important criteria for selecting the site of a prime office.

The response was largely consistent across the major global regions, with 74% of survey respondents based in EMEA ranking it first and 73% of those based in APAC, although US respondents ranked it slightly lower at 63%, reflecting American workers’ greater propensity to commute by car.

“The office has changed in many ways in the last five years, but some location fundamentals are holding steady”, said Rick Schuham, CEO of Global Occupier Services, Savills. “Our research shows that a well-connected location remains a key driver of rental price premiums. Overall, companies are looking for the location formula that works best for their business, with price, branding, image, transportation access and appeal to top talent among the primary factors.  With a few notable exceptions, the persistent transportation “proximity premium” that has emerged is a clear indication of today’s market preferences in major global cities.”  

Local idiosyncrasies mean that a ‘proximity premium’ may not apply universally, Savills points out: in London’s West End, for instance, there is no overt correlation between rents and the distance to key underground stations. Certain postcodes, streets or even individual buildings hold special significance for specific brands and industries, taking precedence for occupiers over their transport links and commanding higher premiums.

“Alongside location, traditional factors such as sustainability credentials, natural light, building security and floor-to-ceiling height also ranked highly amongst our survey respondents”, said Sarah Brooks, Associate Director, Savills World Research. “The former, we know, can also add a rental premium (or a discount), especially in Europe, where investors and markets have high expectations of environmental efficiency. It’s also a factor in Asian Pacific cities, where Australia leads the way.”