An American real estate consultant has questioned the basis on which transatlantic rent comparisons are made. His analysis narrows the differential between London and New York.
Self-styled ‘rentable area consultant’ Bert Parfet contacted i-FM after finding his arguments falling on deaf ears in the States. “Every year someone in the States writes an article about how expensive it is to lease space in the UK. I think they are dead wrong, but no one here wants to listen,” said Parfet.
His plea was prompted by the publication of a Global Market Rents Survey by CB Richard Ellis. Looking at the figures, Parfet says he was struck by a significant fact that he thought the researchers might have overlooked.
Says Parfet: “In London, space is measured by the RICS method (inside face of wall, deducting all non-usable space, even columns!). In New York, space is measured according to the REBNY method (outside face of wall with pro rata floor common and bonus space, known as a ‘loss factor’, which has no physical basis!).
“From a real estate standpoint, the NYC square foot is generally 33% less than the London square foot. Thus the comparable rent for NYC (Midtown) is not $64.63, but $96.95. Since no one in this country quotes rates based on actual square feet, my suggestion is to use the BOMA standard which is widely used in the US, and generally results in a ‘rentable square foot’ or RSF that is 20% smaller than an actual square foot.”
Using his system, Parfet calculates new comparative rates as:
| London (West End) | $125.50/RSF |
| London( City) | $90.00/RSF |
| New York (Midtown) | $77.56/RSF |
| Birmingham, England | $41.58/RSF |
| Seattle, WA | $40.47/RSF |
“As you can see, this makes London much more affordable, and knocks Birmingham down from number 19 to number 35,” says Parfet.
i-FM put Parfet’s concerns to CB Richard Ellis. Kimberley Player Senior Analyst, Global Research responded: “While we do report rents by local currency/measure, we adjust for all differences in local reporting/measurement methods to get the Total Occupation Costs. These Total Occupation Costs are the basis for our international rent comparisons and rankings.
“For example, the UK adjusts all lease rates to reflect a standard Net Internal Area (from the local measurements). This corresponds to North America’s Net Rentable Area, also used in reporting Total Occupancy Costs.”
So, now you know. But the last word goes to Bert: “From her response, I can’t tell if Ms. Player understands that Net Rentable Area is, on average, 25% greater than Net Internal Area. Both are correct in their local market, but neither is suitable for comparing rent across markets. At least we tried.”
—Richard Byatt
Reprinted with permission; copyright 2001 i-FM
