Prime rents for luxury homes in the world’s leading cities are surging ahead due to a heady mix of corporate confidence, recruitment and expat demand.
Rent performance depends on local businesses exploiting employment prospects, business confidence and the ability to source the right staff, according to research by global property consultants Knight Frank.
The firm’s Prime Global Rental Index for the first six months of 2012 increased by 2.3% and by 1.0% over a three month period
The index is 12% ahead of the low point of the downturn in the second quarter of 2009.
Rental growth is strongest in emerging markets, with prime rents in Europe clawing up just 0.5% in the year to the end of June 2012, mainly due to falling employment.
However, prime rents are up in London (25.7%), New York (23.9%) and Hong Kong (35.6%) since the bottom of the market during the recession. While the latest results show prime rents continue to push higher in New York and Hong Kong, rents are softening in London.
The performance of prime rents across global cities is intrinsically linked, says the report.
Corporate demand is determining prime rents, accounting for up to 85% of top-end demand in some cities.
Cities generating strong foreign demand have seen the biggest increases.
Speaking for Knight Frank, Jemma Scott 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. 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, New York, prime rents are at the highest since the downturn. Rising employment and strict bank lending has helped drive rents up as potential buyers have opted to rent rather than buy.
Surging sales market has seen prime prices rise by 76.5% in Hong Kong and 31.2% in Singapore from their recession lows. Rising prices, higher interest rates and growing demand from foreign tenants have boosted prime rents.
Future rental growth is likely to come from developing markets as business globalisation increases.
“Nairobi, Kenya; Tel Aviv, Israel; and Guangzhou, China, are all positioned at the top of the rankings this quarter are not incidental,” said Scott. “Each country are forecast to see a GDP growth in 2012, due mainly to increasing foreign investment.”