London Becomes Most Expensive City to Locate Employees

A strong pound and rising rental rates have made London the most expensive city to work and live in, and the rising costs could negatively impact the city's competitiveness, according to a report.

The cost per individual employee of renting accommodation and leasing office space had risen to £73,800 ($120,000, €94,200) a year in London, almost twice as expensive as Sydney and four times as expensive as Rio de Janeiro, a report by real estate agent Savills shows.

The 12 Cities report is intended to help companies evaluate the cost of relocating employees by measuring the total cost per employee of renting and living in some of the world's major cities.

London is now well ahead of global hubs such as Hong Kong, New York and Paris in terms of living costs, according to the report. The three cities have costs of renting residential and office space of more than $100,000 per employee.

Sydney came eighth at $63,630, Shanghai tenth at $43,171 and Rio eleventh at $32,179. Mumbai was at the bottom of the table with annual employee costs of $29,742.

"Despite its climb in the rankings from fifth to first place since 2008, London is still a way off the live/work accommodation costs record, set by Hong Kong in 2011 at $128,000 a year," Savills said.

In Hong Kong, residential property prices are still 40% higher than that of London.

In London, property prices soared 18.4% in the past year, along with high housing and office rents.

In addition, the pound's relative strength against the dollar has made the situation worse. In dollar terms, London's overall real estate costs increased at an annualised rate of 10.6% in the first six months of 2014.

The rising costs for companies to locate employees in London could hamper the capital city's competitiveness, according to Savills.

"The availability of low-cost office space in and around Silicon roundabout, coupled with affordable residential accommodation, helped put the capital on the technology map. But gentrification has priced out new startups, and the vitality of central London locations are at risk as they become too expensive for the types of occupiers that made them attractive in the first place," the report said.

Hong Kong, which has been topping the list for the last five years, has experienced falling housing rents and a weakening currency.