The latest quarterly prime global rental index from Knight Frank rose by 4.7% in the year to March 2014 with Nairobi topping the annual rankings for the fourth consecutive quarter.
Prime rents in the Kenyan capital increased by almost 26% in the 12 months to March, but there are signs the market is cooling with growth of only 2.1% recorded in the first three months of 2014.
The index shows that some of the world’s top financial centres, for example Singapore, London and Hong Kong, are positioned at the bottom of the rankings with annual falls of 0.3%, 2% and 6.3% respectively.
‘However, we expect prime rental growth in these key cities to strengthen over the remainder of 2014. Rising interest rates could push would be buyers into prime rental markets in cities such as London and New York in 2015,’ said Kate Everett-Allen, head of international research at Knight Frank.
She added that in London, the rental recovery looks to be taking hold as price growth starts to slow. New registrations are up 17% year on year and tenant demand is coming from a diverse set of industries including oil and gas, mining and IT.
‘In Hong Kong, although there has been a relaxation of the Double Stamp Duty rule, a number of stringent cooling measures remain in place. With foreign buyers facing purchase costs of 25% of the sales price, the luxury rental market is attracting those deterred from buying, which should help support future rental growth,’ she pointed out.
Dubai and Tokyo recorded the strongest rates of growth with prime rents rising by 6% and 5% respectively in the first three months of the year.
In Dubai, prime rents continue to outpace wage inflation. ‘This is raising concerns about affordability and is leading domestic and expat buyers alike to consider purchasing a home. However, the introduction of a mortgage cap and higher transfer fees at the end of 2013 has led some to defer this decision,’ explained Everett-Allen.
Whilst prime rents around the world rose by 4.7% in the year to March, they were outperformed by prime capital values which increased by 6.1% over the same period.
‘We expect the gap to narrow as corporate tenant demand, a key driver of prime rents, strengthens on the back of improving economic and business sentiment. The key risks for the world’s sales markets could emerge as catalysts for growth in terms of prime rents,’ said Everett-Allen.
She also pointed out that the withdrawal of stimulus, along with the expected rise in interest rates in influential economies such as the US and the UK, is likely to boost rental demand as mortgage costs rise over time.
