The closing gap between digital business and financial corporations

There is a big difference in most world cities between rents paid by a creative or digital scale-up and a hedge fund, although the gap is closing.

The latest Savills 12 Cities Report (which examines worldwide trends across 12 world cities) found that in June 2015, the total annual office rent paid for each member of staff in a hedge fund averaged US$22,399 compared to US$10,453 per person for a small digital scale-up or creative company. The difference between these rents clearly reflects a different scale of revenue between a financial company and a creative company, but the gap is expected to continue to close on a global level. 

Globally, while office rents in the financial sector fell by an average of 1.8%, the creative sector offices witnessed growth of 8.6% over the same period. This is due to the size of the digital and creative sectors growing faster than the finance industry in many of the world cities Savills monitors.

Comparison of individual cities

The Savills 12 Cities Report identified some stark differences in rental growth. Hedge funds operating out of Dubai can expect to pay 60% less in rent (in local currency) than they did in 2008, and in Singapore 41% less. 

Meanwhile, creative types in Hong Kong, San Francisco and London are paying, respectively, 46%, 43% and 30% more than they were in 2008.

In Sydney, creative industry companies are paying more per person for office rents than finance companies. Relatively low demand for financial offices in Sydney means the city has some of the cheapest rents for this sector among the world cities in the report, paying well below the world average per person.

Sydney is unusual in having a financial sector where rents are lower than the creative sector. Rental growth in both sectors has not been spectacular, but financial rents have slightly outperformed creative since 2008 and continued to do so over the past year.

How will the disruption affect real estate?

The digital age will continue to disrupt the industries of the occupiers and it is likely that we will continue to see changes in rental levels, according to who wins and who loses in this new marketplace.

We may see more landlords switching from core, prime financial sector assets to fringe, secondary properties in areas catering for the growing creative digital sector.

Landlords not only need to adapt buildings to suit these new occupiers in all sectors, they need to be aware that tenants are likely to continue to seek new locations and new ways of working to ameliorate rising rental costs in core central business district areas. Investors who spot these trends early will see the best returns.

To learn more about the trends across world cities, view the Savills 12 Cities Report.