Emerging markets bolster prime rental indexThe Knight Frank Prime Global Rental Index rose by 2.3% in the year to June and by 1.0% over a three month period
The index now stands 12% above the recession low in Q2 2009
Rental growth is strongest in emerging markets
Prime rents in Europe rose by just 0.5% in the 12 months to June due to sluggish employment markets
Prime rents in London, New York and Hong Kong have risen by 25.7%, 23.9% and 35.6% respectively since their recessional lows
Although the index recorded annual growth of 2.3% in the year to June, this modest performance remains some way off the double-digit growth seen pre-2008, suggesting that the prevailing economic conditions continue to impede growth.
The performance of prime rents across global cities is intrinsically linked to employment, business confidence and recruitment.
At the top end of the world’s rental markets corporate demand is increasingly influential, accounting for up to 85% of prime rental demand in some cities.
As in the prime sales market, it is those cities that generate strong foreign demand that have seen the strongest uplift in rents since the global recession hit in 2008.
Prime rents in London, New York and Hong Kong have risen by 25.7%, 23.9% and 35.6% respectively since their recessional lows.
While the latest results show prime rents continue to push higher in New York and Hong Kong, rents are softening in London.
Jemma Scott, Knight Frank’s Head of Corporate Services said:
“London’s current weakness in headline rents is not due to a wider downturn in demand from tenants. Instead, affordability constraints and the weaker performance of London’s economy are limiting the scope for rental growth.”
Ms Scott adds “Lettings volumes were strong in the second quarter as the Olympic Games prompted some corporate tenants to arrive early to secure the best properties. Demand from US and French tenants proved particularly strong.”
In Manhattan prime rents are at their highest since the recession. An improving regional economy, rising employment and strict bank lending has helped drive rents upwards as potential buyers have opted to rent until mortgage lending rules are relaxed.
In Hong Kong and Singapore a heated sales market in recent years has seen prime prices in rise by 76.5% and 31.2% respectively from their recession lows.
Affordability pressures accompanied by rising interest rates and growing demand from foreign tenants have boosted prime rents.
But rents in Hong Kong and Singapore still trail prices, with growth of 35.6% and 20.6% respectively over the same period.
Future rental growth is likely to be focussed on the world’s developing markets as business globalisation increases.
Nairobi, Tel Aviv and Guangzhou’s positions at the top of the rankings this quarter are not incidental.
In sharp contrast to many western economies, Kenya, Israel and China are forecast to see chunky GDP growth of 4.7%, 2.3% and 7.8% respectively in 2012, due in large part to a surge in foreign investment.