Hong Kong is the most expensive world class city in which to locate a Business, according to new research from Savills, with London in second place and New York a close third.  The total Real Estate cost of setting up business in all three cities is now almost three times that in the most competitively priced world class capitals, Shanghai and Mumbai.

As a result, Sydney now stands out as "especially good value" and looks set to take advantage of expanding Pacific Rim investment, Savillls has said.

Previewing its latest World Cities Review which will be published on March 20, Savills has ranked the top ten world class cities using a measure of competitiveness based on the total cost of real estate space, both residential and commercial, to accommodate core financial and creative sector business teams.  The analysis includes headline rents and all associated taxes and charges which are often overlooked and can add as much as 53 per cent to the base office rental cost.

"In the intensely competitive global market for top talent, the cost, quality and desirability of a city lifestyle is an important unit of currency," says Yolande Barnes, director of Savills world research.

"Business location choices sometimes have as much to do with where the CEO wants to live as economic considerations, but the cost of residential and commercial accommodation for an international business team can have a significant impact on the bottom line.  Our analysis shows the importance of looking beyond headline rents, or assuming that commercial and residential rents work in tandem.

"A location's competitive pricing is by no means the only part played in its success - quality of life and business competitiveness will be key factors too - but the whole cost sum, and particularly the quality of business premises in a location can have an important impact on the human capital that is such a key part of the knowledge economy.

"Shanghai, Sydney and Singapore all have among the cheapest total costs of the ten world cities studied but each offers different competitive and business environments. Given their location within or close to the new world centres of wealth generation, they should be well-placed for inward investment from both financial and creative sector businesses."

Looking forward, Sydney now stands out as offering particularly good value, though it has shown the greatest five year growth - with total accommodation costs rising by around 14% per cent.  The country's new Significant Investment Visa is attracting a significant number of inquiries from Asia, both for residential and commercial investment opportunities, with budgets ranging from AUD5 million to AUD300 million.

The main obstacle to Sydney's growth as a world city has been the restrictions on foreign purchasers buying homes.  This new visa pathway for migrant investors, requiring the applicant to invest AUD$5 million into complying investments for a minimum of four years before being eligible to apply for a permanent visa, may change this.   Its purpose is to attract investors and may well mean that Sydney's real estate values outperform many other world cities over coming years.

The relative ‘cost freeze' in rents and associated costs is changed by currency fluctuations (not shown) which have served to make some cities, such as Sydney for example, look more expensive to Euro and Sterling denominated businesses.  Although static Real Estate Costs might be expected in "old world" cities affected by recession, it is perhaps surprising in view of the high levels of capital growth seen in "new world" cities.  Barnes believes that this is indicative of a "more elastic supply-side response in these locations.  It also reflects the extent of the yield contraction in many "new world" cities, where rents have not kept pace with capital values."

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