It says that corporate tenants seeking value for money and are increasingly conscious of the rental differential between neighbourhoods in relatively close proximity, says the analysis from global property advisor Knight Frank.
The data shows that Cape Town, Zurich and Toronto recorded the strongest rise in prime rents in the year to June 2015 while a strong US dollar has led to savings for US corporate tenants relocating abroad over the last year.
For corporate tenants with families, schooling is a concern with places in some cities in increasingly short supply and demand is unlikely to diminish as according to Worldwide ECR, some 45% of global multinationals expect international assignments to increase and this figure rises to 54% amongst those with headquarters in the US.
A stronger dollar means US companies are expanding once again but despite this expansion of demand, Knight Frank’s Prime Global Rental Index, which tracks the performance of 18 key cities, confirms that rental growth has been muted in recent years, rising only 0.2% in the year to June 2015.
While cities like Cape Town, Zurich and Toronto have seen strong growth of 10%, 8% and 5% respectively, rental performance in most cities has been weaker than might have been expected due to the increasing affordability squeeze in many locations.
‘Corporate tenants are placing greater emphasis on value for money with employees being encouraged to take control of their budgets directly, leading to a greater incentive for taking lower priced accommodation options,’ said Oliver Knight, global head of research as Knight Frank.
He also pointed out that currency fluctuations are an important consideration for corporate tenants. ‘The ongoing strength of the US dollar means that US tenants in particular have seen strong savings in rental costs. For example a US tenant spending the equivalent of $1,000 a week in central London in the middle of 2008 would be paying $800 for the same accommodation now, as a result of currency and market movements,’ he explained.
‘At the same time European tenants have seen their budgets moving in the other direction due to the weakness of the Euro. Over the same period described above a French banker renting accommodation in New York would have seen the need for a weekly budget o €1,000 moving to almost €1,500,’ he added.
London is a key market for corporate lettings and in the year to June 2015 prime rents in central London rose on average by 3.4% with areas such as Marylebone and Hyde Park outperforming the market average.
Overall, Knight explained that the improving UK economic landscape saw annual rental growth exceed 4% earlier in the year but the General Election dampened activity as the lettings market entered a period of adjustment.
‘Stock levels increased as some owners chose to rent their property rather than sell as a postelection spike in prices failed to emerge. As a result of its history, London, finds itself with distinct professional hubs or neighbourhoods,’ said Knight.
The report says that lawyers relocating to London, for example, look for proximity to Chancery Lane, Temple and The City. Those in IT, media and the communications industry often gravitate towards Islington and Kings Cross which gives them easy access to the technology hubs of Clerkenwell and Shoreditch.
Single executives and young professionals relocating to London spread their net wide but areas such as The City, Wapping and South Bank rank highly with them. Families often opt for West or North London where there is plenty of green space, easy access to quality schools and often a village-feel in areas such as Kensington and Clapham.
Hong Kong is also in demand and prime rents rose by 2.4% in the year to June 2015. Wealth flows from mainland China and a growing number of corporate relocations strengthened demand. According to Hong Kong’s Immigration Department, 31,676 employment visas were granted in 2014, a 12% increase on the previous year.
The report suggests that schooling is a critical consideration for corporate tenants moving to Hong Kong with demand severely outweighing supply particularly at primary level. Sheung Wan and Western District saw stronger demand, partly due to the opening of the new MTR extension but also given their close proximity to several top schools.
On top of this, the strength of the Hong Kong Dollar (pegged to the US Dollar) means few foreign tenants have benefitted from the currency play in the last 12 months with Eurozone tenants having fared particularly poorly.
‘Towards the third quarter of 2015, with cooling measures still in place, the focus of the sales market has shifted to the new development market with developers actively launching new flats with larger discounts and more beneficial packages. Resale transactions have been suppressed and some owners have opted to lease their properties rather than sell, adding to supply levels within the lettings market,’ said Knight.
For multinationals looking for a presence within Central and Eastern Europe, the report says that the Romanian capital Bucharest is emerging as a key base. The take-up of office space in Bucharest reached a five year high in 2014 with the IT and Communications sector accounting for 43% of total leasing activity. Orange, Vodafone, Microsoft and Oracle now have a presence in the city with several having leased 10,000 to 25,000 square meters in the last 12 months.
Established neighbourhoods include Herastrau and Primaverii but emerging districts such as Baneasa (Sisesti) and more recently, Dimitrie Pompeiu are increasingly popular as tenants look to gain easier access to their offices and cut commute time.
A four bedroom family home in Aviatorilor or Kiseleff typically rents for US$2,250 to US$4,000 per month while a young executive wanting a central location can find a two bedroom apartment for US$680 per month.
The report adds that for families relocating to the city there are several good international schools. The options are broad with both British and American International Schools, a Lycée Français and a Cambridge School now in situ.
