Knight Frank’s rental index for prime properties across the world fell by 1.1 per cent last year, partially reversing the 2.5 per cent increase recorded in 2014.
The company said that global economic conditions, ranging from indifferent equity markets to the slump in commodity prices, had contributed to the index's weaker performance in 2015.Knight Frank's Prime Global Rental Index
tracks the change in luxury residential rents across 17 cities globally and more than 50 per cent of them recorded a decline in prime rents last year although, on a regional basis, North America bucked the trend with an average increase of 2.8 per cent.
However, the individual city that continued to be the global pacesetter was China's Guangzhou, which topped the rankings for the second consecutive quarter and returned an annual rise of 5.3 per cent – well above the 3.3 per cent average increase in Tokyo and Toronto, which were in joint second place.
Taimur Khan, senior research analyst at Knight Frank, said, "The prime global rental markets is intrinsically linked to each city's employment market and, in particular, the professional services sector.
"Muted performance in equity markets and record low commodity prices contributed to the index's weaker performance in 2015. Guangzhou remained the strongest performing city...despite market conditions being favourable for buyers with record low interest rates and a relaxation of financing for second homes and foreign buyer restrictions in China last year."
The index showed that Geneva had deposed Moscow as the weakest performing market in 2015, with rents falling by 7.1 per cent annually, the downward pressure being caused in part by strong supply. The beleaguered Russian economy, however, still resulted in a substantial fall in rents in its capital.
Mr Khan said that some of the world's financial centres have shown divergence in terms of the performance of prime rents with Hong Kong seeing a fall of 0.8 per cent, and levels in Singapore down 3.8 per cent. On the other hand, Tokyo, New York and London recorded rises.
"2015 saw large regional variations in terms of rental performance around the world," said Mr Khan. "North American cities recorded the strongest rise in prime rents, up 2.8 per cent on average, whilst Europe saw the largest decline, with average prime rents decreasing by 3.5 per cent."
Since its post financial crisis low in mid-2009, the index has increased by 19 per cent, although annual increases since the crisis have been only a fraction of what they were between 2007-8.
"On the upside," said Mr Khan, "2015 saw a partial resolution to the to the 'Grexit' crisis and the Asian equity markets stabilised. In 2016, 'Brexit' looks to be fuelling further uncertainty within Europe, with business activity hitting a 13-month low, according to the Markit's European composite Purchasing Managers' Index.
"In markets which are already reflecting on negative interest rates, low commodity prices and a slowdown in China, further uncertainty in the world's key prime rental markets is likely."
Annual prime rental change:
- Guangzhou Asia 5.3%
- Tokyo 3.3%
- Toronto 3.3%
- New York 2.4%
- Shanghai 1.9%
- Cape Town 1.6%
- London 0.7%
- Taipei 0.0%
- Tel Aviv -0.8%
- Hong Kong -0.8%
- Vienna -1.3%
- Beijing -1.5%
- Zurich -3.2%
- Singapore -3.8%
- Nairobi -5.1%
- Moscow -6.5%
- Geneva -7.1%
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