Prime global residential rents are struggling to achieve growth, with the Knight Frank index rising by only 0.2% in the past year, the slowest rate of growth since Q1 2010. Kate Everett-Allen analyses the latest set of results.
Despite the index’s muted growth, 10 of the 18 cities tracked by the index saw rents rise during the 12 months to June 2015.
Cape Town leads the rankings with prime rents ending the year to June 10.2% higher. A shortage of rental stock coupled with the introduction of tighter credit regulations has led to a spike in demand as potential homebuyers find themselves having to look for rental accommodation instead.
Although sales markets in cities such as Singapore, London and Nairobi are pausing for breath (in most cases due to policy intervention be it via taxes or mortgage regulation) the commonly-held perception that prime rental markets will, in contrast, start to accelerate isn’t holding true.
Instead, the performance of our Prime Global Rental Index closely mirrors global GDP and with sluggish growth considered “the new normal” the heady days of 5% annual growth look unlikely to be repeated for some time (figure 2). This is good news for high end residential tenants, in particular those relocating to the US where the strong dollar could be mitigated by slower rental growth.
According to Worldwide ECR, 45% of global multinationals expect international assignments to increase but this figure rises to 54% amongst those with headquarters in the US. A stronger dollar means US companies are expanding once again, to some extent filling the void left by the retraction of emerging markets in recent years.
Zurich and Hong Kong are two exceptions to the sales/rental relationship described above. Here, restrictions on foreign buyers (Lex Weber in Zurich, Buyer Stamp Duty in Hong Kong) have strengthened rental demand in these two key financial centres.
Moscow occupies the bottom ranking for the third consecutive quarter. Based on Knight Frank’s basket of properties which reflects the current 78%/22% split between Rouble and USD set rents, prime rents have slipped 11% over the last year.
The Knight Frank Prime Global Rental Index is an important resource for investors and developers looking to monitor and compare the performance of prime residential rents across key global cities. Prime property corresponds to the top 5% of the housing market in each city. The change in prime residential rents is measured in local currency. The index is compiled on a quarterly basis using data from Knight Frank’s network of global offices and research teams.