Prime global rental index continues negative performance
Knight Frank’s Prime Global Rental Index fell by 1.1% in 2015 with equity market volatility and economic fragility in emerging markets driving rents lower.
This was the finding of Knight Frank senior research analyst Taimur Khan who examined the latest figures. “Weak equity markets and record-low commodity prices contributed to the index’s weaker performance in 2015,” he says.
Knight Frank’s Prime Global Rental Index, which tracks the change in luxury residential rents across 17 cities globally, fell by 1.1% in 2015, down from growth of 2.5% in 2014.
The performance of prime global rental markets is intrinsically linked to each city’s employment market and in particular the professional services sector.
Guangzhou (featured image ) remained the strongest performing city recording annual rental growth of 5.3% in 2015. This is despite market conditions being favourable for buyers with record-low interest rates and a relaxation of financing for second homes and foreign buyer restrictions in China last year.
Weakest of them all
Geneva displaced Moscow as the weakest performing market in 2015, with rents falling by 7.1% annually, the downward pressure on rents being caused in part by strong supply.
Some of the world’s top financial centres have shown divergence in terms of the performance of prime rents. Rents fell in Hong Kong (-0.8%) and Singapore (-3.8%), whereas Tokyo, New York and London recorded a rise in prime rents year-on-year of 3.3%, 2.4% and 0.7% respectively.
2015 saw large regional variations in terms of rental performance around the world. North American cities recorded the strongest rise in prime rents, up 2.8% on average, while Europe saw the largest decline, with average prime rents decreasing by 3.5%.
Since its post financial crisis low in Q2 2009, the index has increased by 19%. From Q1 2007 to Q3 2008, prior to the financial crisis, the index averaged increases of 9.1% per annum; however post Q2 2009 the average annual change has diminished to 2.5%.
On the upside, 2015 saw a partial resolution to the ‘Grexit’ (Greece exit of the EU) crisis and the Asian equity markets stabilised. In 2016, ‘Brexit’ (Britain’s exit from the EU) looks to be fuelling further uncertainty within Europe, with business activity hitting a 13-month low, according to Markit’s European Composite Purchasing Managers’ Index.
In markets which are already reflecting on negative interest rates, low commodity prices and a slowdown in China, further uncertainty is likely in the world’s key prime rental markets.