Back when I was a rookie broker, I remember being in a taxi with the global head of real estate for a major international occupier based in the U.S. I was showing them around options for their “rest of world” headquarters. Eager to show my client how engaged I was, I asked him what rent he was paying for his head office in California. When he replied, “$4 per square foot,” I was speechless. I suddenly thought I was about to show him offices that cost over ten times that amount! Only after the tour ended did I find out that in some states in the U.S., rents are quoted per month rather than per annum.Rent is rent whether it’s paid in dollars or euros, pounds or pesos. Or is it?
In theory, it should be simple. You’re looking for office space to rent abroad; they tell you how much it costs, and you benchmark that back against what you pay in your domestic market. Wrong. Different countries quote office rents using entirely different systems, with varying metrics, timeframes, and exclusions.
From the United States to Europe and beyond, there’s one thing every office market seems to have in common: the ability to bewilder anyone trying to make an informed comparison. In theory, it should be simple. You’re looking for office space to rent abroad; they tell you how much it costs, and you benchmark that back against what you pay in your domestic market. Wrong. Different countries quote office rents using entirely different systems, with varying metrics, timeframes, and exclusions.
Let’s start with the two fundamental ways of measuring the size of an office: square feet versus square meters. If you’re in the United States, you’re used to square feet. Cross the Atlantic to Europe, and suddenly everyone’s talking in square meters. Except, to make it even more confusing, not everyone in Europe actually uses square meters. I’m based in the United Kingdom (UK) and we’re still quoting office rents on a per-square-foot-basis. It is far beyond the scope of this article to talk about Japan, where floor areas are calculated in tsubo, which are equivalent to two tatami mats — I will leave it up to readers to Google that!
GROSS VS. NET: WHAT ARE YOU ACTUALLY PAYING FOR?
Let’s add some more layers of complexity. Next question: Are you paying gross rent or net rent? In the U.S., some markets quote gross rents (inclusive of operating costs), while others quote net rents. In contrast, in the UK, office rents are almost exclusively quoted on a net basis, whereas in continental Europe, rents can be quoted on either net or gross terms.
In Europe, office space is generally marketed as a gross floor area, meaning that in addition to paying for the usable office space, tenants also pay rent on restrooms and an allocation of the common areas. In the UK, rents are quoted based on the area exclusively used by the tenant, which in the U.S. would be referred to as the “carpetable area.” The BOMA standard of measurement is predominant in most U.S. cities but is not universal. In short, even the calculation of floor areas is nuanced between markets around the world, so an identical office suite might be 10,000 sq. ft. in London and 12,000 sq. ft. in Chicago!
MONTHLY VS. QUARTERLY VS. ANNUAL RENTS
I’ve already demonstrated the scope for confusion concerning rental periods with my anecdote at the start of the article. Across the U.S., depending on the market, rent can be quoted as either a yearly rate or a monthly rate, but they are paid monthly regardless. Meanwhile, in the UK, rent is quoted annually and billed quarterly. Confused yet? To add to the idiosyncrasies, across the rest of Europe outside the UK, rents can be charged either monthly or quarterly.
THE CHALLENGE OF CROSS-MARKET COMPARISONS: BRING YOUR CALCULATOR
Take a hypothetical tenant based in the U.S. looking for offices in Europe. The European rent might be quoted in euro per square meter per annum, on a gross floor area and inclusive of other operational costs. The U.S. occupier compares that to what they pay at home, which might be calculated in dollars per square foot per month, based on the useable square footage, multiplied by the BOMA add-on factor, and on a triple net basis. Whilst it doesn’t require a doctorate in mathematics to adjust the figures for comparison, without a grasp on local market practices, it’s extremely easy for a headline rent figure to be misleading.
RENTS: THE TIP OF THE ICEBERG
How rents are expressed is just the beginning of the variations in practices across international real estate markets. For example, in the U.S., the landlord will pay the tenant’s broker’s fee, whereas in Europe, the tenant will normally pay their own broker’s fee.
Regulations also vary enormously, making it critical to find a dependable local partner. For context, in the UK, anyone can set themselves up as a commercial real estate broker without a requirement for license. The gold standard for real estate regulation in the UK is membership of the Royal Institution of Chartered Surveyors (RICS), but many brokers do not have this qualification. Whilst the RICS has global membership and recognition, it would not be sufficient for advising on a deal just across the English Channel in France, where there are stringent licencing rules. The key to working internationally is knowing the right questions to ask.
By broadening their geographic expertise, brokers can strengthen client relationships and generate new revenue streams.
GLOBALIZATION
Why does any of this matter? The globalization of the world economy has fundamentally transformed the way corporations operate, with many now maintaining offices in multiple countries across the globe.
Companies no longer view their operations as confined to a single region. Whether it is tech firms establishing R&D hubs in Europe or manufacturing giants setting up administrative offices in Asia, the modern multinational enterprise requires a global real estate strategy.
Global office portfolios often span the world, from New York to London and Singapore to São Paulo. Whether navigating local market conditions or understanding regional regulations, brokers who offer insights into multiple regions and coordinate projects across continents will become invaluable partners for their clients.
SIOR: AN INTERNATIONAL NETWORK
By broadening their geographic expertise, brokers can strengthen client relationships and generate new revenue streams. As companies continue to expand globally, real estate professionals must be ready to support them — anywhere in the world.
SIOR offers invaluable support for its members when dealing with international clients. By leveraging a global network of highly qualified real estate professionals, SIOR members can collaborate across borders to provide seamless, expert service. Members can rely on their international colleagues for in-depth knowledge and guidance. This collaboration ensures clients receive top-tier service and strategic advice, no matter where their global real estate needs take them.