Residential rents put pressure on costs & salaries in Europe's 'cheaper' workplace alternatives, Savills

In its latest research report, international real estate advisor Savills highlights the importance for companies looking to expand or relocate on the continent of considering the financial implications of housing employees, not just the cost of leasing office space.

According to European Cities, a report from Savills which looks at real estate across 12 cities from the perspective of business occupation, residential rents per person are on average five times more than the cost of leasing office space across the cities monitored. In some locations this means that residential real estate could result in being overall more costly to a company than workspace, due to the pressure it puts on salaries, as well as the threats unaffordable housing poses for staff retention.

Savills notes that for occupiers, understanding the quality, availability and competition for both workspace and housing is critical in the race to attract talent. With this in mind, the firm  has measured the rental cost of the homes as well as the rents, property-related taxes and service charges associated with the workspace that a group of seven key employees occupy across the 12 cities in its report. The staff group monitored, called the ‘Savills Executive unit (SEU)’, consists of one ex pat CEO, one ex pat director, one local director and four local administrative staff. (These are the same seven people located in each city, so the data is comparable and the averages given span both the financial and tech sectors). 

Not surprisingly,  London and Paris are the most expensive cities in Europe in which to locate the Executive Unit, costing businesses an average of €85,000 and €72,000 per worker per year respectively for accommodation. Most of these accommodation costs are for residential property (72% and 84% respectively).

The next tier of cities, Milan, Dublin, Amsterdam, Moscow and Brussels, have accommodation costs which are nearly half the price of the top tier cities.  However, Savills notes that in Amsterdam and Dublin there is a relatively high cost of residential accommodation compared to workspace. The annual workplace costs per employee for both cities could be considered extremely attractive at the relatively low rate of circa €6,000 per annum although the residential costs, of €37,250 and €39,201 respectively, constitute around 85% of the combined cost per employee.

Yolande Barnes, Head of Savills World Research, comments: “Both Dublin and Amsterdam are small but high profile cities with established global business centres offering a high quality of living and lots of ‘City Buzz’. They are very attractive to the European and global workforce. Although workplace costs are favourable in these cities, the cost of homes in them will mean that employers are likely to feel pressure in the form of wage demands or any housing allowances.”

Savills suggests that,  as a result of high residential rents, cities with the right vibe, good jobs and low housing costs will become increasingly attractive on a global stage. It is the cities themselves that will be attracting young, skilled and valuable global workforces, much more than the organisations within them.  Cities such as Berlin and Stockholm are already attracting global talent due to their exceptional urban environments and they are particularly appealing to companies looking for highly cost effective employee workspace and a high quality workforce.

“Importantly, cities like Warsaw and Berlin offer cheaper housing markets and are therefore particularly attractive to young people with limited equity seeking to put down roots and form families in stable communities,” says Barnes. “Due to the very high cost of accommodation, it is ever more difficult for young workers in the megacities of London and Paris to buy into the housing market.”