Prime office costs across major global cities experienced a significant upswing in the first quarter of 2026, a trend fueled by robust demand for high-quality workspaces and a persistent scarcity of available premium properties. This surge, detailed in a new report by leading real estate advisory firm Savills, signals a notable shift in the commercial real estate landscape, with net effective occupier costs, encompassing both rents and fit-out expenses, climbing by an average of 0.7 percent globally during the three-month period. This quarterly increase contributes to a substantial 5 percent rise over the past year and a cumulative 9.1 percent escalation in occupier costs over the last two years, underscoring a sustained upward trajectory in the market.
Savills, which meticulously tracks 47 key cities worldwide, observed an increase in occupier costs in 23 of these urban centers during the initial quarter of 2026. The report further breaks down these regional performances, indicating a 1 percent rise across the Europe, Middle East, and Africa (EMEA) region, a 0.7 percent increase in North America, and a more moderate 0.4 percent uptick in Asia Pacific. This broad-based growth highlights a global phenomenon, albeit with regional variations in intensity and underlying drivers.
Epicenters of Growth: Tokyo and Midtown Manhattan Lead the Charge
The most striking increases were recorded in Tokyo and Midtown Manhattan, two of the world’s most dynamic and competitive office markets. Tokyo’s occupier costs surged by an impressive 12.7 percent in the first quarter, while Midtown Manhattan saw a significant 4.2 percent jump. Savills attributes these substantial gains to exceptionally strong demand from occupiers vying for a limited supply of premium office space.
In Manhattan specifically, the first quarter witnessed a robust leasing activity of 12 million square feet, a threshold that has only been crossed once since 2021, underscoring a significant resurgence in the leasing market. Notably, approximately two-thirds of these transactions were concentrated in the Midtown district, further intensifying competition for prime assets in this prime business hub. This sustained demand in Manhattan has fundamentally altered the dynamics between landlords and tenants, reversing the tenant-favorable conditions that prevailed in the immediate post-pandemic era.
Asia Pacific: A Tale of Two Markets
The Asia Pacific region, while exhibiting the lowest overall regional increase, presents a bifurcated picture. This subdued performance is largely influenced by the continued decline in mainland Chinese markets. Across the four Chinese hubs monitored by Savills, occupier costs experienced a 2 percent fall during the quarter. However, the report notes a deceleration in the pace of this decline over the past year, suggesting a potential stabilization or even a gradual recovery in the medium term.
In stark contrast to mainland China, occupier costs in other Asian markets, excluding China, saw an average increase of 1.4 percent, with Tokyo emerging as the undisputed leader. The quarterly rise in Tokyo was the sharpest recorded in any Asia Pacific city since Savills’ report was first launched in 2020. The firm anticipates that this upward pressure on costs in Tokyo is likely to persist in the near future, driven by the ongoing demand-supply imbalance.
EMEA: Resilience and Rising Rents
Within the EMEA region, Dublin and Milan stood out with notable increases in prime office costs. Dublin experienced a 4.8 percent rise in occupier costs, a surge attributed to a combination of escalating rents and service charges, coupled with a slowdown in new development activity. This reduced supply pipeline further exacerbates the competitive landscape for occupiers.
Milan, meanwhile, recorded a 3.5 percent increase, bolstered by rising rental rates and a reduction in landlord incentives. The Italian market, like many others, is demonstrating a clear preference for high-quality, well-located office spaces, pushing up the costs for those seeking such environments.
North America: AI Demand Fuels San Francisco’s Growth
North America’s occupier costs rose more modestly on average, yet specific markets like Midtown Manhattan and San Francisco significantly outperformed the regional average. San Francisco’s occupier costs climbed by 2.4 percent, a growth that Savills partly attributes to the sustained and robust demand from artificial intelligence (AI) firms actively seeking prime office space. The burgeoning AI sector continues to be a significant driver of demand in key tech hubs, influencing rental rates and availability.
The Shifting Landlord-Tenant Dynamic
The recovery in demand for premium office space, particularly in New York, has markedly altered the leverage between landlords and occupiers. During the immediate aftermath of the COVID-19 pandemic, landlords were compelled to offer substantial incentives, including extended rent-free periods, to secure tenants and mitigate vacancies. As market conditions have strengthened and demand has rebounded, these incentives have been significantly curtailed. Consequently, occupiers are now facing higher net effective costs as the balance of power shifts back towards property owners.
The report highlights the tangible impact of this shift in Midtown Manhattan, where net effective occupier costs have escalated by a considerable 28.7 percent since the first quarter of 2022. This substantial increase underscores the rapid recalibration of the market and the growing expense for businesses seeking to establish or expand their presence in prime locations.
Expert Perspectives: Navigating the Competitive Landscape
Rick Schuham, CEO of Global Occupier Services at Savills, emphasized the persistent strength of demand for high-quality office space across the majority of major global cities. "In a large number of locations, landlords have now reduced incentives, and occupiers have limited options to choose from," Schuham stated. "This makes it imperative that they engage with the market early, define their requirements effectively, and ensure their intentions and options are clear." His remarks underscore the need for strategic foresight and proactive engagement from businesses looking to secure optimal office solutions in the current market climate.
The latest edition of Savills’ report also reflects an expanded geographical scope, incorporating new data from Dallas, Atlanta, Mexico City, Manila, Lagos, Johannesburg, and Oslo. This broader coverage provides a more comprehensive global perspective on office market trends.
Sarah Brooks, Associate Director in Savills World Research, explained the rationale behind this expansion. "The additional cities reflect growing demand for prime office space in a wider range of business locations," Brooks commented. "While these are all very different markets, generally they are beginning to see increased demand for prime space, as global occupiers increasingly strategize to cost-effectively access the best talent ahead of their competitors." This suggests a strategic shift by companies to leverage prime office locations not just for operational efficiency but also as a tool for talent acquisition and retention in a globally competitive environment.
Broader Implications for the Future of Work
The sustained rise in prime office costs has several significant implications for businesses and the broader economy. Firstly, it signals a continued flight to quality, with companies prioritizing modern, well-amenitized, and strategically located office spaces that can attract and retain employees in an evolving work environment. This trend is likely to accelerate the obsolescence of older, less desirable office stock.
Secondly, the increasing costs may necessitate a reassessment of real estate strategies for many organizations. Businesses might consider more flexible lease terms, smaller but higher-quality footprints, or a greater emphasis on hybrid work models to manage expenses effectively. The competitive leasing environment also means that occupiers must be highly strategic in their site selection and negotiation processes.
Furthermore, the strong performance of prime office markets can be seen as a positive indicator for urban economic recovery and investment. It suggests a renewed confidence in the commercial real estate sector and its role in supporting business growth and innovation. However, the rising costs could also present affordability challenges for smaller businesses or those in less resilient sectors, potentially impacting the diversity and vibrancy of urban business districts. As the market continues to evolve, ongoing monitoring of occupier demand, supply dynamics, and economic conditions will be crucial for understanding the long-term trajectory of prime office costs globally.
