Economic and political uncertainty hits global prime residential rents

Global economic and political uncertainty has contributed to a slowdown in prime global rents, with rental growth stalling, the latest index shows.

In the 12 months to September 2016 rents were unchanged overall but some regions have outperformed, with prime rents in North America rising by 5.1% on average, the data from the Knight Frank index shows.

Toronto leads the rankings with prime rents increasing by 7.9% on an annual basis but the annual rate of growth has slowed in 10 of the 17 cities tracked by the index and Nairobi occupies the bottom ranking with prime rents falling by 10.8% year on year.

However, despite this slowdown in aggregate performance, the number of cities where annual rental growth is positive remains the same as the previous quarter at 10 but the rate of growth has slowed in 10 of the 17 cities.

The index report explains that in Toronto annual population growth of 9% in 2015 and a low and stable rate of unemployment at 6.6% have contributed to increased demand for rental properties.

Also, rising home ownership costs, including a year on year price rise of 12% and higher mortgage rates, along with a narrowing vacancy rate have pushed prime rents higher in Toronto.

Tokyo’s prime rents increased annually by 7.3% with the fundamentals driving this performance being similar to those witnessed in Toronto while in Nairobi an oversupply of prime rental properties and lower demand from corporate clients due to a prolonged period of low oil prices has led to prime rents falling.

The report also says that in London the prime rental market continues to absorb higher stock levels and this has put downwards pressure on prime rents which fell by 4.7% in the 12 months to September 2016.

Although uncertainty remains, primarily due to the UK’s decision to leave the European Union, Knight Frank pointed out that it has agreed a record number of tenancies in the year to September.

North America continued to be the strongest performing world region with average annual prime rental growth of 5.1%. Africa registered the weakest performance with prime rents falling 3.7% on average in the year to September 2016.

‘Whilst uncertainty remains over the form of Brexit in the UK and the stance on global trade which President elect Trump is likely to take we can be more confident that a US rate hike is imminent,’ said Taimur Khan, a senior research analyst at Knight Frank.

‘However, any rise may have significant knock on effects particularly for emerging markets. Record levels of sovereign debt in some emerging markets means that even a small increase in interest rates may suppress corporate activity, which in turn could hinder economic growth and prime rental market performance,’ he added.

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