Global prime rents down by an average of 0.5% in key cities

Prime residential property tents fell by an average of 0.5% in the year to March 2016 but some cities saw strong growth, the latest index shows.

Some 11 of the 17 cities tracked by the Knight Frank prime global rental index saw flat of falling rental values in the last 12 months.

Toronto led the rankings with prime rents rising by 8.9% due to strong demand for prime rental properties, combined with a low vacancy rate for condominium apartments.

The index report says this is despite completions nearing historic highs, which would usually mean an increase in rental supply and downward pressure on prime rents.

Indeed, North America continues as the strongest performing region with prices rising by 3.3% on average. Africa has displaced Europe as weakest performing region with rents falling on average by 3.2% annually.

At the bottom end, prime rents in Nairobi fell by 7.9% in the 12 months to March. Demand for prime rental properties in the city has traditionally been from expats but this has weakened demand due to multinational firms downsizing as a result of adverse economic circumstances driven by low commodity prices.

Second in the index for growth was Guangzhou with annual growth of 5.3%, followed by Cape Town at 1.5%, Shanghai at 1.4%, Vienna at 0.9%, and Tel Aviv at 0.6%. Rents in Taipei remained flat.

In London prime rent prices were down 1% in the year to March 2016, the lowest annual rate since May 2014. However, the total rental yield which is a combination of capital growth and rental yield was 3.7% in the year to March, outperforming benchmark hedge fund and stock market indices.

Tokyo has seen prime rents fall by 0.2% year on year, Moscow by 0.6%, Beijing 0.9%, Zurich down by 1.7%, New York down by 2.3%, Singapore down by 3.6%, Geneva a fall of 4.4% and Hong Kong down by 5.2%.

‘Luxury rental and sales markets tend to move in opposite directions. Luxury sales markets have been subject to increased regulation, for example in New York, and a changing tax landscape in the UK,’ said Taimur Khan, Knight Frank senior research analyst.

‘Prior to the implementation of some of these regulations, volumes in prime sales markets have increased. This has led to an increased level of supply of prime rentals and therefore prices have fallen, in the coming year we expect the prime global rental index to rebound as these factors are absorbed,’ he explained.

‘Uncertainty in global markets, partly as a result of Brexit, the US presidential election and the timing of the next US rate hike has led to investment decisions on a corporate level being put on hold as firms adopt a wait and see attitude,’ he added.