Of the 17 cities tracked by the index, 11 have recorded flat or falling prime rents over the last 12 months.
Toronto leads the rankings with prime rents rising by 8.9%. Strong demand for prime rental properties, combined with a low vacancy rate for condominium apartments, has driven prime rents higher. This is despite completions nearing historic highs, which would usually mean an increase in rental supply and downward pressure on prime rents.
Prime rents in Nairobi fell by 7.9% in the 12 months to March. Demand for prime rental properties has traditionally been from expats. Rents have trended lower as we are seeing weakened demand from this segment of the market due to multinational firms downsizing as a result of adverse economic circumstances driven by low commodity prices.
In London we have seen prime rental growth slow to -1% in the year to March 2016, the lowest annual rate since May 2014. However, the total rental yield which
is a combination of capital growth and rental yield was 3.7% in the year to March, outperforming benchmark hedge fund and stock market indices.
Luxury rental and sales markets tend to move in opposite directions (figure 4). Luxury sales markets have been subject to increased regulation (New York) and a changing tax landscape (UK). Prior to the implementation of some of these regulations, volumes in prime sales markets have increased. This has led to an increased level of supply of prime rentals and therefore prices have fallen, in the coming year we expect the prime global rental index to rebound as these factors are absorbed.
North America remains the best performing region with average prime rents increasing by 3.3% in the year to March. Africa has displaced Europe as weakest-performing region with rents falling on average by 3.2% annually.
Uncertainty in global markets, partly as a result of Brexit, the US presidential election and the timing of the next US rate hike has led to investment decisions on a corporate level being put on hold as firms adopt a wait and see attitude.