According to the latest Knight Frank global property rents research, despite the pandemic and political headwinds, Hong Kong has retained its crown as the world’s most expensive city in which to rent a luxury apartment. Prime rents in Hong Kong averaged US$6.70 per sq.ft at the end of 2020, meaning a tenant with a budget of US$10,000 per month would be able to rent less than 1,500 square feet.
The global comparisons are based on a three-bedroom apartment in a central location, but stand-alone, or detached, homes in some cities can achieve even higher premiums. As an example, earlier this year a house on Hong Kong’s The Peak rented for HK$ 1.35 million (US$ 174,000) a month, which on an annual basis equates to more than US$ 2 million a year.
Although prime rents have softened since the start of the pandemic, New York is the second most expensive market, with US$ 10,000 a month providing US$ 2,250 square feet on average. Next come Singapore, London and Sydney which occupy the mid-rankings with US$ 10,000 securing between 2,500 and 3,000 square feet for rent.
Of the eight key global cities tracked, Dubai and Madrid offer the largest space in return for rent of US$ 10,000 per month – 4,800 and 5,000 square feet, respectively.
Faisal Durrani, Head of Middle East Research at Knight Frank, commented: "Dubai’s property market has remained subdued for a number of years, with the pandemic exacerbating conditions. However, concerted efforts by the government to stimulate economic activity and deliver one of the world’s leading vaccination roll out programmes has begun to instil confidence in the market, with average property values rising by 0.7% during Q1, the strongest rate of growth since the summer of 2016.
"The impact of the economic stimulus measures has been slower to filter through to the luxury rental market, with rents in this top-tier segment of the market declining by 0.5% during Q1. It is worth noting however that luxury rents grew by 1.8% during March 2021, the first increase in 12-months and the strongest rate of growth since October 2013, suggesting that the window for securing luxury "bargains" may be on the cusp of reversing."
What impact has the pandemic had on the rental market?
When the pandemic first hit in 2020, corporate tenants and international students – two key sources of demand for prime rental properties in first tier cities – were amongst the first to head home or relocate temporarily. The resulting uptick in supply put pressure on rents and saw landlords forced to change their strategy to avoid lengthy void periods.
Rents in prime central London and Manhattan both fell 14% in the year to February 2021. However, the tide is definitely turning. The rate of rental declines is slowing and new lease signings are recovering in both markets. Motivated by large discounts, prime tenants are making their move back into some city centres hopeful of shorter commutes post the pandemic.
Whilst domestic demand looks to be strengthening in some cities, the easing of travel restrictions will be the key determinant for the recovery of prime rental markets globally.
What are the key reasons people rent?
• Flexibility: A rental property provides greater flexibility for those uncertain about their future plans instead of being tied to a lengthy sales process.
• Familiarisation: Some prime tenants prefer to rent whilst familiarising themselves with the local market before choosing what and where to buy.
• Positioning: In cities where primes prices are falling and are expected to do so in the short to medium term, some homeowners will opt to sell and rent enabling them to be a cash buyer once prices bottom out.
• Prohibitive purchase taxes: Several markets have raised purchase, ownership and sales costs in recent years. As an example, foreign buyers looking to purchase in markets such as Hong Kong and Singapore would have to pay between 15% and 20% in additional stamp duties on top of existing rates for domestic buyers, making renting a more attractive option.
To read our analysis on prime prices and learn how much space you can buy for US$1 million in key cities globally click here – https://bit.ly/3vzEs0j