“With the majority of markets still under pressure from relatively strong demand and limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents should support above-average growth over the medium term.”
– Liam Bailey, Global Head of Research at Knight Frank

Knight Frank’s Prime Global Rental Index has found average annual rental growth of 3.5% in its basket of 15 cities since June 2023 – the same level as in the first quarter. Although this rate is well below the average growth of recent years, it is only 0.3% below the long-term pre-Covid average rate.

Despite the slowdown in annual growth, quarterly growth has picked up, coming in at 1.1% in the second quarter, slightly above the long-term trend rate of 0.9%. Meanwhile, 80% of markets saw annual rent increases in the second quarter – the same as in the first quarter. Hong Kong, Toronto and Singapore were exceptions, with rents in all three markets under pressure due to relatively healthy levels of new supply.

The strongest market was Sydney, where rents rose by almost 14% last year. The market was boosted by strong immigration, which increased sharply after the easing of pandemic restrictions and has not yet been significantly offset by the provision of new housing.

Tokyo, Berlin and Frankfurt were the only other markets with positive rental growth of over 5% over the last twelve months. Germany experienced strong growth in property prices and rents as demand for housing significantly exceeded supply.

Prime rents are now (on average) 27% above Q1 2021 levels across all cities Knight Frank covers. The biggest growth has been in New York, London, Miami, Singapore and Sydney, where rents have increased by more than 40% since Q1 2021.

In recent years, rents in luxury markets have moved in opposite directions to home prices. The pandemic-led housing boom led to significant underperformance of rents in 2020 and 2021, while in 2022/23 rents jumped as workers flocked to cities and home prices were impacted by rising interest rates. This has led to significant outperformance of rents. Likewise, affordability constraints in both the sales and rental markets appear to have pushed the two metrics closer together over the past two quarters.

“The recent slowdown in rental growth in prime locations suggests an end to the sharp price increases seen in key city markets over the past few years. Even the luxury sector is subject to affordability constraints and rental growth in most cities has moved closer to long-term trend levels,” said Liam Bailey, Global Head of Research at Knight Frank.

“However, with the majority of markets still under pressure from relatively strong demand and limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents should support above-average growth over the medium term,” he concluded.