North America Continuing To Win Prime Rent Growth Race

Arti Mehta

21 December 2016

The annual rate of growth has slowed in 10 of the 17 cities tracked by prime global rental index in quarter three of 2016. Performance across all 17 cities has ground to a halt, recording a zero per cent annual growth in the year to September 2016.

North America has continued its reign as the strongest-performing world region with an average annual prime rental growth of 5.1 per cent, with Toronto’s annual growth of 7.9 per cent making it the region's (and the world's) biggest hitter. New York’s own annual growth was at 2.4 per cent, although interestingly, the city’s rates for the three months in the second to the third quarter of 2016 dropped -3.0 per cent. This made it the second biggest decrease behind Geneva which dropped at -4.5 per cent for the quarter.

While Hong Kong showed the lowest figures in annual rental growth, Tokyo helped to prop up Asia’s performance with the largest annual growth in the region of 7.3 per cent, and coming second in the world overall (behind Toronto). Asia in general showed a growth of 0.4 per cent, which in addition to Hong Kong’s decrease, was held back by the Singaporean 12 month change of -3.3 per cent.

Six out of the 17 cities included in the index, mainly in Europe and the emerging markets, saw their top rental prices decline. In fact, not one single European city registered an increase, with Geneva’s annual rate decreasing at -5.9 per cent, London’s dropping at -4.7 per cent and Vienna’s at -3.3 per cent.

“London’s prime rental market continues to absorb higher stock levels; this has put downwards pressure on prime rents,” said the report.

Africa registered the weakest performance with prime rents falling 3.7 per cent on average in the year to September 2016. Nairobi brought down the average with a -10.8 per cent annual drop in contrast to the 3.3 per cent annual increase in Cape Town.

Aside from Hong Kong and Singapore, China joined Tokyo in representing for growth in Asia (and the emerging markets) with the Chinese cities of Beijing, Guangzhou and Shanghai all reporting an increase, whilst Taipei remained at 0.0 per cent.

The look ahead
“Whilst uncertainty remains over the form of Brexit and the stance on global trade which President-elect Trump is likely to take, we can be more confident that further rate hikes are imminent in 2017 to counteract (expected) expansionary fiscal policy,” said Taimur Khan, senior research analyst at Knight Frank.

“However, any rise may have significant knock-on effects particularly for emerging markets. Record levels of sovereign debt in some emerging markets means that even a small increase in interest rates may suppress corporate activity, which in turn could hinder economic growth and prime rental market performance,” he added.