Prime rents across the 17 key cities around the world fell marginally by just 0.4% in 2016 suggesting that the sector is seeing a recovery.
Some 10 of the cities recorded rental growth over the course of the year, up from seven in 2015, according to the data from the Knight Frank’s prime global rental index.
But there is still some ground to be made up as two year ago there was growth of 2.5% and the difference between the strongest and weakest performing markets increased to 14%, up from 12.5% in 2015.
Toronto saw the biggest growth in prime rents with an increase of 8% year on year and the index report points out that this was despite a fall in the volume of tenancies agreed over the course of the year caused by a lack of supply in the condominium rental market.
It also explains that with luxury house prices in Toronto rising by 15.1% in 2016, buyers who may have been considering single family homes are now turning their attention to the less expensive condominium market which exacerbated the lack of supply further.
Cape Town saw rents rise by 6.3% year on year, followed by Guangzhou in China up by 3.9%, Zurich up by 3.3%, Tel Aviv and New York both up by 2.4%, Beijing and Tokyo both up by 1.4%, Shanghai up by 1% and Taipei unchanged.
Rents fell by 0.1% in Vienna, were down by 3.3% in Singapore, by 4.2% in Moscow, by 4.6% in Geneva, and by 5.1% in Hong Kong and London. Nairobi remained the weakest performing market for the fourth consecutive quarter with rental values falling by 6% in 2016.
However, in Nairobi in the last quarter of 2016, prime rents were unchanged, suggesting declines may have started to bottom out. This trend is further supported by a steady increase in oil prices over the past few months, the report adds.
Despite rental value declines in prime central London in 2016, latest activity data is pointing to an uptick in demand, which is beginning to counter balance the effect of growing supply. The number of tenancies agreed in prime central London was 20% higher in the final quarter of 2016 compared to 2015.
Meanwhile, there was a 12% year on year rise in new rental properties coming onto the market in the final quarter of 2016, a figure that was lower than the increase of 30% recorded over the first nine months of the year and Knight Frank predicts more positive rental performance in 2017 in London.
North America continued to be the strongest performing world region for the fifth consecutive quarter with average annual prime rental growth of 5.2% and Europe displaced Africa as the weakest performing region with prime rents falling 2.1% in 2016.
‘With increasingly active fiscal and monetary policies in the US, such as President Trump’s proposed US$1 trillion infrastructure plan and tax cuts as well as the decision by the Federal Reserve to raise interest rates, we may see other central banks and governments follow suit to either support currency or to deal with any spill over of inflation,’ said TAIMUR KHAN Senior Research Analyst.
‘Higher interest rates would negatively impact on market affordability, a process which could lead to an increase in the demand for rental accommodation, as prospective buyers opted to rent for a period,’ he added.