Prime residential rents in key global property markets falling
Equity market volatility and economic fragility in emerging markets are driving prime residential rents in key cities across the world lower, new research shows.
Knight Frank’s Prime Global Rental Index, which tracks the change in luxury residential rents across 17 cities globally, fell by 1.1% in 2015, down from growth of 2.5% in 2014.
The index report points out that the performance of prime global rental markets is intrinsically linked to each city’s employment market and in particular the professional services sector.
‘Muted performance in equity markets and record low commodity prices contributed to the index’s weaker performance in 2015,’ said Taimur Khan, a senior research analyst with Knight Frank.
Guangzhou remained the strongest performing city recording annual rental growth of 5.3% in 2015. This is despite market conditions being favourable for buyers with record low interest rates and a relaxation of financing for second homes and foreign buyer restrictions in China last year.
Geneva displaced Moscow as the weakest performing market in 2015, with rents falling by 7.1% annually and the report explains that the downward pressure on rents is being caused in part by strong supply.
Some of the world’s top financial centres have shown divergence in terms of the performance of prime rents. Rents fell in Hong Kong by 0.8% and in Singapore by 3.8% whereas Tokyo, New York and London recorded a rise in prime rents year on year of 3.3%, 2.4% and 0.7% respectively.
The report also points out that 2015 saw large regional variations in terms of rental performance around the world. North American cities recorded the strongest rise in prime rents, up 2.8% on average whilst Europe saw the largest decline, with average prime rents decreasing by 3.5%.
Since its post financial crisis low in the second quarter of 2009 the index has increased by 19%. From the first quarter of 2007 to the third quarter of 2008, prior to the financial crisis, the index averaged increases of 9.1% per annum. However after the second quarter of 2009 the average annual change has diminished to 2.5%.
On the upside, it explains that 2015 saw a partial resolution to the to the ‘Grexit’ crisis involving Greece’s position in the European Union and the Asian equity markets stabilised.
But now in 2016 it is ‘Brexit’, the UK’s position in the EU, which looks to be fuelling further uncertainty within Europe, with business activity hitting a one month low, according to the Markit’s European composite Purchasing Managers’ Index.
‘In markets which are already reflecting on negative interest rates, low commodity prices and a slowdown in China, further uncertainty in the world’s key prime rental markets is likely,’ Khan concluded.