Luxury Rental Markets Soar: Singapore and London Lead the Pack

The luxury rental market across the globe continues to witness impressive growth, as revealed by the Knight Frank Prime Global Rental Index. In the 12 months leading up to March this year, the index surged by 8.5%, setting new records in the majority of markets.

While the rate of annual growth in Q1 2023 slightly decreased from the previous quarter's 10.2%, rents are still climbing at a rapid pace worldwide. This trend originated in 2021 as city economies rebounded from the impact of the pandemic.

Remarkably, prime rents now surpass pre-pandemic highs by 14%, marked as autumn 2019, and stand 21.7% above the pandemic low experienced in early 2021.

Among the ten tracked markets, Singapore takes the lead with a remarkable 31.5% increase in rents over the past year, including a 6.4% surge in the last quarter alone. London follows closely with a 16.9% rise in rents up to March. Sydney, Toronto, and New York also boast double-digit growth rates.

While Auckland and Hong Kong display negative annual growth, rents in both cities have shown an upward trajectory over the past three and six months.

The strong rental growth observed since the pandemic can be attributed to limited supply caused by construction disruptions during lockdowns and increased demand from workers returning to cities as economies reopened.

Taking a closer look at specific cities, Singapore has experienced a surge in rents across all market segments. The reopening of borders in late 2022 prompted the return of international workers to the city. Additionally, successive hikes in stamp duty rates, reaching up to 60% for certain foreign buyers, have made rental properties a more viable option due to the increased cost of property purchases.

However, Singapore's robust construction pipeline, with over 2,000 prime units scheduled for delivery in 2023, may alleviate rental pressures by the end of the year.

While Hong Kong currently ranks at the bottom for annual growth, the luxury market has shown signs of improvement in recent months, with a 1.9% growth rate in Q1 2023. The reopening of borders in early January has led to an increase in leasing demand as more expats return to the city.

To further support the rental market, the Hong Kong government launched a talent attraction scheme in December, targeting high-earners and foreign graduates from top universities. By the end of March, approximately 12,000 applicants had received approval, providing a positive outlook for the rental market in the near future. Knight Frank predicts that rents in Hong Kong will rise by up to five percent in 2023 as a whole.

Strong rental growth in markets like Sydney, New York, and London can be attributed to chronic undersupply of rental properties and low volumes of new construction. In Manhattan and Brooklyn, New York's prime market, record rents are being witnessed, leaving tenants with limited options and higher costs in a fiercely competitive market.

The rapid rental growth observed in many markets has raised concerns about governments taking policy action to protect renters from soaring costs. However, arguments against implementing rent caps, which claim that they disrupt markets, discourage investment in new-build accommodations, and exacerbate the situation, seem to be prevailing. In the UK, the opposition Labour Party appeared to reject the policy in May of this year.

Governments are increasingly advocating for investment in the Build To Rent (BTR) sector as a solution to mitigate steep rent increases. Knight Frank predicts that the BTR sector will become the world's largest investable real estate sector within the next decade.

As the luxury rental market continues to thrive, Magnate Assets remains committed to providing exceptional opportunities and insights in the ever-evolving global real estate landscape. Stay tuned for more updates on the latest trends and developments in the luxury rental sector.