"With the majority of markets still experiencing pressure from relatively strong demand set against limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents is likely to support above-trend growth in the medium term."
- Liam Bailey, Global Head of Research at Knight Frank
Knight Frank’s ‘Prime Global Rental Index’ has revealed a 3.5% year-on-year average rental growth across its basket of fifteen cities since June 2023 – the same level reached in Q1. Although this rate is significantly lower than the average growth seen in recent years, it’s only 0.3% below the long-run pre-Covid average rate.
Despite annual growth slowing, quarterly growth has picked up, standing at 1.1% in Q2. This is slightly above the long-term trend rate of 0.9%. Meanwhile, 80% of markets saw rents rise on an annual basis in Q2 – the same as in Q1. Notably, Hong Kong, Toronto & Singapore were the exception with rent in all three markets under pressure due to relatively healthy new supply volumes.
The strongest market tracked was Sydney, where rents have risen by nearly 14% in the past year. Its market has been buoyed by strong immigration which surged after the Pandemic restrictions were eased and has yet to be significantly offset by the delivery of new-build accommodation.
Tokyo, Berlin & Frankfurt were the only other markets with positive rental growth above 5% in the past twelve months. Germany has experienced strong house price and rental growth as demand for accommodation has significantly outpaced supply.
Prime rents are now 27% above Q1 2021 level (on average) across Knight Frank’s basket of cities. The biggest growth has occurred in New York, London, Miami, Singapore & Sydney which have all seen rents rise by more than 40% since Q1 2021.
In recent years, rents have moved in opposite directions to house prices in luxury markets. The Pandemic housing boom saw rents significantly underperform throughout 2020 & 2021, while in 2022/23 rents surged as workers flocked to cities and house prices began to be impacted by rising interest rates. This has led to significant rental outperformance. Likewise, affordability constraints in both the sales and rental markets appear to have pushed the two measures closer in the past two quarters.
“The recent slowing in prime rental growth suggests an end to the substantial upward repricing of key city markets seen over recent years. Even the luxury sector is subject to affordability constraints, and in most cities, rental growth has moved closer to long-term trend levels,” explained Liam Bailey, Global Head of Research at Knight Frank.
“However, with the majority of markets still experiencing pressure from relatively strong demand set against limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents is likely to support above-trend growth in the medium term,” he concluded.
