World cities see prime residential rental yield growth: LA leads the world pack; Berlin sets the pace in Europe

Prime residential rental growth across leading world cities slightly picked up pace during the first half of 2019, rising 0.9% to take average year on year growth to 1.3%. This continues a four-year long pattern of low level, but steady increases, resulting in the first uptick in average yields since late 2014 as capital value growth stalled, according to the Savills World Cities Prime Residential Rental Index.

In the year to the end of June 2019, capital values across the Savills index slowed to 0.7% annually, pushing yields up to 3.2%. However, while cities are beginning to converge in terms of rental growth levels, yields remain much more widely spread, from Los Angeles and Moscow at 5.2% and 5.0% respectively to just 1.5% for Guangzhou, one of four Chinese cities yielding 1.7% or under.

“While there are variations at an individual city level, the trend across both prime rents and capital values in leading world cities is broadly stable,” says Sophie Chick, head of Savills World Research. “Very few cities are seeing annual rental growth above 2%, a trend we expect to persist, given prevailing global political and economic headwinds.

“In the sales market, these forces translate into weakened sentiment and delayed decision-making, which has caused price growth to stall. But at the same time, although this pushes some demand into the rental markets, squeezed corporate relocation budgets continue to put pressure on rents. This means that while rents are outperforming capital values, we expect both markets to stabilise rather than continue to move apart, thus limiting the scope for yields to push out further.”

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7 cities with rental growth above 3 %

Latest data from the Savills World Cities Prime Residential Rental Index of 21 cities shows that only seven cities – Los Angeles, Barcelona, Berlin, Tokyo, Hong Kong, Beijing and Shanghai - saw annual rental growth above 3%. However, the astonishing capital value growth over the past decade mean that many Asian cities remain extremely low yielding.

Prime London rents also slipped slightly, by -1.3% year on year, but latest evidence from the market suggests a return to rental growth in the second quarter of the year. Strong market activity, in spite of Brexit uncertainty, helped to reduce the balance between supply and demand.

“Leading world cities will continue to be magnets for an increasingly global young, affluent workforce and this will support demand for prime rental properties,” says Chick. “But as corporate budgets feel the pinch and new stock sets a new bar for quality and puts pressure on existing stock, we expect the general trend to be towards stabilising rents.”

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Los Angeles was the standout city in the first half of the year, with rental growth of 4%, taking yields to 5.2%, the highest in the index. Similarly, Berlin saw rental growth pick up pace in H1 2019, but strong capital price growth kept yields close to the index average at 3.1%.

In Moscow, the turnaround seen in capital values as returning Muscovites drive up demand for prime homes was also seen in rising rental values. While rental values remain -2.9% down over the full year values, they recorded 2.3% growth in the first half of the year.

The New York rental market, like its underlying sales market, has seen high levels of new prime residential stock. This has slowed both rental and capital value growth, but not yet translated into falling rents, which remain the highest in the Savills index, at $2 per square foot per week, equivalent to a weekly rent of $4,260 for a 2,000 square foot apartment. Yields stood firm at 4.3%.

Similarly, Sydney has seen an influx of new stock, but affordability constraints in the sales market has kept rental demand high, allowing rents to tick up 1.4% year on year. Dubai, by contrast, which has also seen high levels of new stock, but a slowdown in global trade and financial markets continued to suppress rents in the first half of 2019, continuing the trend seen since 2014.

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Savills World Cities Prime Residential Rental Index H1 2019 –
cities ranked by H1 growth

Source: Savills Research

Les også: Kontoreiendom i Oslo vil lede verdiveksten, skrevet av analysesjef Haakon Ødegaard

Les også: — "Alle" vil ha logistikkeiendom, skrevet av senior analytiker Herman Ness

Les også: Kostbar fleksibilitet, skrevet av analysesjef Haakon Ødegaard