Prime residential rents in key locations around the world are struggling to achieve growth, up by just 0.5% in the 12 months to the end of March 2017, the latest published index shows.
However, over 70% of the 17 cities tracked by the Knight Frank index did see a rise of varying levels, led by Cape Town with an annual rise of 5.9% while Nairobi saw rents fall by 6.2%.
On a regional basis, the Middle East saw the strongest rise in prime rents, up 1.7%, and Europe recorded the weakest with a fall of 0.3%.
While the number of cities where prime rents have increased on an annual basis rose from six in the first quarter of 2016 to 12 in the first three months of 2017, the general trend has been for steady, rather than spectacular growth.
‘Indeed, it is worth noting that while prime rents are following an upward trajectory, in recent years they have been overshadowed by prime price growth, putting pressure on investment yields,’ said Taimur Khan, a senior research analyst at Knight Frank.
The data shows that between the first quarter of 2007 and the first quarter of 2015, both annual capital and rental growth averaged 3% per annum. However, since the first quarter of 2015 prime capital values averaged 4.1% annual growth.
‘Prime rental growth has remained relatively flat over the same time period. Safe haven investment flows into luxury property markets and lacklustre growth in earnings have underpinned these market trends respectively,’ Khan added.
In Cape Town growth has been underpinned by strong migration into the city with potential buyers choosing to rent before committing to purchasing, the report suggests.
Prime rents in London continue to bottom out with the annual rate of falls slowing to -4.9% to March 2017. ‘Uncertainty in the sales market following a series of tax hikes has led to an increased supply of properties for rent. However, this trend is starting to ease as the sales market stabilises,’ Khan explained.
The report reveals that some of the world’s top financial centres have shown divergence in terms of the performance of prime rents. Annual rental values fell in New York by 1.2% and were down 2.3% in Singapore. But Zurich and Hong Kong recorded a rise year on year of 5.1% and 0.6% respectively.
‘Global economic sentiment remains cautiously upbeat. The latest indicators show low unemployment in the US, positive economic growth in every European country, the first time since the global financial crisis, and the growth rate in Asia remains robust,’ Khan pointed out.
‘This may spur additional business investment, increased relocation budgets and ultimately an increase in demand for rental accommodation around the world,’ he concluded.