Sydney has once again recorded the highest annual prime rental growth across 15 of the world’s leading cities.
However, there are signs that the growth is starting to slow with rents increasing just 0.9 per cent in the past three months.
According to Frank Knight’s Prime Global Rental Index (PGRI) for Q2 2024, Sydney’s prime rents rose by 13.9 per cent over the 12 months to the end of June.
The Harbour City was the standout performer and tracked well ahead of the other cities that saw just 3.5 per cent annual rental growth on average.
Other strong performers in the past 12 months, were Tokyo (11 per cent), Berlin (6.9 per cent) and Frankfurt (5.1 per cent).
Since the start of 2021, prime rents in Sydney have risen by 40.9 per cent, making it one of only five cities to record growth of more than 40 per cent including New York, London, Miami, and Singapore.
Knight Frank Australia Chief Economist Ben Burston said while the growth has been impressive, there are signs it’s starting to ease.
“The Sydney rental market has tightened significantly due to strong immigration over the past two years, which surged after Covid restrictions were eased, and has yet to be significantly offset by the delivery of new supply,” Mr Burston said.
“However, the pace of growth is now easing, with Sydney’s quarterly growth rate falling from 4.5 per cent in Q1 to 0.9 per cent in Q2, indicating that affordability is becoming a constraint on the rental surge, while the rental market has also benefitted from a rise in listings in recent months.
“While growth has slowed, upward pressure on rents is likely to persist until investor demand for new apartments is strong enough to drive a substantial injection of new supply.”
Aside from Sydney, Tokyo, Berlin and Frankfurt were the only markets with positive rental growth above 5 per cent in the past twelve months.
Germany has also seen strong house prices and rental growth as demand for housing has significantly outpaced supply.
Overall, prime rents are now 27 per cent above 2021 levels across the basket of cities.
In the second quarter, 80 per cent of markets saw rents rise on an annual basis, with Hong Kong, Toronto, and Singapore being the only exceptions, where rents faced pressure due to relatively healthy new supply volumes.
Knight Frank Global Head of Research Liam Bailey said the recent slowing in prime rental growth suggests an end to the substantial upward repricing of key city markets seen over recent years.
“Even the luxury sector is subject to affordability constraints, and in most cities, rental growth has moved closer to long-term trend levels,” Mr Bailey said.
“However, with the majority of markets still experiencing pressure from relatively strong demand set against limited supply—exacerbated by Covid-era development disruptions—upward pressure on rents is likely to support above-trend growth in the medium term.”
