Knight Frank’s Prime Global Rental Index Q4 2014

The Prime Global Rental Index saw a notable slowdown this quarter. On an annual basis the index rose by just 0.6% in 2014, its weakest rate of growth since 2009. Kate Everett-Allen examines the latest data.

The 16% decline in prime rents recorded in Moscow dragged our global index down but four other cities also saw prime rents slip year-on-year; Vienna, Geneva, Singapore and Beijing.

Moscow’s prime rents are measured in US dollars and the fall is directly linked to the weakness of the Rouble. At the start of 2014 the US dollar equated to 32.8 roubles, by the end it was closer to 56.5.

The weak index results underline the global economy’s fragility in 2014 but hides the fact that 12 of the 17 cities we cover saw luxury residential rents increase or remain static in 2014.

Tokyo leads the rankings with luxury rents ending the year 11.1% higher (figure 2). Japan emerged from recession at the end of 2014 and the economy is forecast to rise by 1.3% in 2015 and 2% in 2016. Central wards such as Chiyoda and Minato are seeing a rise in tenant demand due to strong population growth and expat demand.

In Hong Kong the potential interest rate rise in the US and the continuation of cooling measures meant more landlords chose to rent their property rather than sell in 2014, adding to rental supply and suppressing rental growth.

In Dubai the bulk of the 8.1% increase in prime rents occurred in the first half of the year. Outside the oil industry tenant demand has proved robust.

Although monthly growth slowed to zero in prime central London by the end of the year, the annual increase in rental values reached 3.3%, which was the highest rate in three years.

Demand and activity in the prime residential rental market is strongly linked to business activity and employment levels. Events in Europe will be critical to the overall index’s performance in 2015 with significant areas of concern still being addressed in the region’s economy.

Although a ‘Grexit’ remains a possibility, business activity in the Eurozone is now close to a four-year high and deflationary pressures have eased partly due to higher wages suggesting a more positive outlook for 2015.