Indeed of the 17 cities tracked by the Knight Frank prime global rental index just nine saw flat or rising prime rents in the year to June.
Overall the index recorded annual growth of 2.2% in the year to June, down from 4.7% in the year to March.
The gap between the strongest and weakest performing cities over the last 12 months shrank from 32 percentage points in March to 19 points in June suggesting the performance of the world’s top luxury rental markets is converging.
Dubai holds the top spot in the quarter, having recorded a 14.1% increase in prime rents in the year to June. The emirate leap frogged Nairobi which had enjoyed four consecutive quarters at the top.
However, both cities recorded weaker growth in the last quarter which largely explains the index’s more sluggish performance over the three months to June.
Annual rental growth in Nairobi more than halved from 25.8% in March to 9.9% in June. Dubai’s step change was less stark, from 16.4% to 14.1% over the same time period.
In Nairobi, asking rents for key tenants such as the diplomatic community look to have reached their ceiling. This, combined with security concerns help explain the slowing pace of growth.
In Dubai, prime rents continue to outpace wage inflation which is raising concerns about affordability, leading some to consider buying instead of renting.
Although London, Singapore and Hong Kong saw prime rents decline in the year to June, the rate of decline is slowing.
‘As economic conditions in the world’s top financial centres improves, prime rental demand is likely to accelerate due in part to the upturn in corporate relocations,’ said Kate Everett-Allen, a Knight Frank residential research partner.
She pointed out that prime rents in London began their recovery at the start of the year and recorded monthly growth of 0.9% in June, a three year record. While in Hong Kong rental demand for luxury homes picked up towards the end of the second quarter as expat families sought homes prior to the start of the new school year.
‘With interest rates likely to rise in the US and the UK in 2015, economic growth largely stagnant in Europe and stringent cooling measures still in place across much of Asia, we expect prime rental markets will benefit from quieter activity in the world’s luxury sales markets during the remainder of 2014,’ added Everett-Allen.
