Figures point to some softening in the prime, or luxury, rental market for properties in 17 major cities of the world.

An index of rents for luxury residential properties around the world fell 0.9 per cent in the 12 months to the end of September, the softest out-turn since the first quarter of 2010, according to Knight Frank, the global real estate firm.

Knight Frank’s Prime Global Rental Index tracks changes in luxury residential rents across 17 cities around the world. Of the cities tracked, nine of them recorded flat or falling prime rents in the last 12 months. The gap between the top and bottom ranking city has shrunk considerably, it said.

The strongest performing city (Guangzhou) and the weakest performing city (Moscow) are separated by 17.5 percentage points. Two years earlier the comparable figure was closer to 30 points.

In the 12 months to end September this year, Guangzhou’s rents rose 6.2 per cent, ahead of London at 2.4 per cent, followed by Toronto at 2.2 per cent, Zurich at 1.7 per cent and Shanghai at 1.6 per cent, level-pegging with Cape Town, also at 1.6 per cent. In seventh place was Nairobi, at 1.1 per cent, then Hong Kong, at 1.0 per cent.

Moscow’s prices fell 11.3 per cent, while Beijing’s rental prices were down 5.6 per cent, and New York was down 5 per cent. Singapore fell 4.6 per cent, and Geneva was down 2.9 per cent.

The overall index reached its peak in the fourth quarter of 2014, having increased 23 per cent from its financial crisis low in the second quarter of 2009. 

“The strong US dollar, which is likely to be bolstered further as a result of the recent rate hike by the Federal Reserve, is driving US corporate relocations, particularly to emerging markets in Latin America and Africa,” Knight Frank said.

“According to Mckinsey, by 2025 45 per cent of the Fortune Global 500 companies will be based in emerging markets, compared to 5 per cent at the turn of the century. The strong link between economic performance and prime rental growth explains the low rankings of Singapore, Beijing and Moscow where economic output is slowing or tepid at best,” the firm said.

“The shift in prime rents is also influenced by changes to housing policy. In Guangzhou for example, we expect prime rents to dip slightly in the fourth quarter as interest rate cuts and the relaxation of restrictions for foreign buyers filter into the market pushing demand back towards the sales market," it said.

Prime property, for the purpose of the Knight Frank study, relates to the top 5 per cent of the housing market in each city. The change in prime residential rents is measured in local currency. The index is compiled on a quarterly basis using data from Knight Frank’s network of global offices and research teams.