Dubai also saw strong growth with rents ending the year almost 14% higher but London and Hong Kong saw prime rents fall the fastest.
The index tracks the performance of prime residential rents across 17 cities worldwide and the report says that it is intrinsically tied to the health of each city’s respective employment market, in particular the business and financial services sector.
Overall prime rents recorded weaker growth in 2013 than in 2012 when it was 5.1% and one reason was because employment gains in 2013 proved marginal.
Emerging markets outperformed the world’s top financial centres. Nairobi saw growth as multinationals looked to strengthen their headcount in the Kenyan capital.
The report also says that a two tier market emerged in the second half of 2013 in Dubai with secondary locations recording a stronger rate of growth than those in the Emirate’s prime developments.
The report points out that events in Syria and Egypt emphasised Dubai’s status as a regional safe haven. Tenant demand also rose following the announcement that the city will host Expo 2020.
Although prime rents in Nairobi and Dubai recorded the strongest rate of annual growth in 2013, rents here are half, or in Nairobi’s case, as much as 70% below those found in London and New York.
The contrasting fortunes of London and New York’s financial sectors explains their differing results. Manhattan saw luxury rents increase by 3.5% in 2013 at a time when Wall Street bonuses rose by 15% year on year. By comparison, the number employed in London’s financial services is estimated to have contracted slightly in 2013 by 0.2% and prime rents declined by 2.3%.
But a comparison of prime rental growth since the start of the financial crisis in 2008 shows that despite London’s recent weak performance it has outperformed the remaining cities, rising by 20.9%.
Knight Frank says that the slowing prime rental growth in Hong Kong is attributable to the reduction in housing allowances and fewer expat arrivals. Tenants are finding that landlords are more willing to negotiate on rents than they have been for several years.
Also the 2014/2015 Land Sale Programme, which will deliver 15,500 new homes, may impact on prime rents if tenants forced to rent in recent years due to the lack of available homes are now able to secure their own property.
