Sydney records the highest rental growth in prime locations in the world

Sydney once again recorded the highest annual growth in prime rents among 15 of the world’s leading cities.

However, there are signs that growth is slowing: in the last three months, rents rose by only 0.9 percent.

According to Frank Knight’s Prime Global Rental Index (PGRI) for the second quarter of 2024, prime rents in Sydney rose 13.9 percent in the twelve months to the end of June.

The Harbour City performed excellently and remained well ahead of the other cities, which recorded an average annual rental growth of only 3.5 percent.

Other strong performers in the past twelve months were Tokyo (11 percent), Berlin (6.9 percent) and Frankfurt (5.1 percent).

Since the beginning of 2021, prime rents in Sydney have increased by 40.9 percent, making the city one of only five to record growth of over 40 percent, including New York, London, Miami and Singapore.

Ben Burston, chief economist at Knight Frank Australia, said while growth was impressive, there were signs of a slowdown.

“Sydney’s rental market has tightened significantly over the past two years due to strong immigration, which increased sharply following the easing of Covid restrictions and has yet to be offset by the provision of new supply,” Mr Burston said.

“However, the pace of growth is now slowing. Sydney’s quarterly growth rate fell from 4.5 percent in the first quarter to 0.9 percent in the second quarter. This suggests that housing affordability is becoming a barrier to rental growth, while the rental market has also benefited from an increase in listings in recent months.

“Even though growth has slowed, upward pressure on rents is likely to continue until investor demand for new housing is strong enough to drive significant new supply.”

Besides Sydney, Tokyo, Berlin and Frankfurt were the only markets with positive rental growth of over 5 percent in the past twelve months.

In Germany, too, property prices and rents have risen sharply as demand for housing far exceeds supply.

Overall, prime rents in all cities are now 27 percent higher than in 2021.

In the second quarter, 80 percent of markets saw year-on-year rent increases, with the only exceptions being Hong Kong, Toronto and Singapore, where rents came under pressure due to relatively healthy new supply.

Liam Bailey, Global Head of Research at Knight Frank, said the recent slowdown in rental growth in prime locations signals an end to the significant price increases seen in key city markets in recent years.

“Even in the luxury sector, there are affordability constraints and in most cities, rental growth has converged on long-term trends,” Bailey said.

“However, with the majority of markets still under pressure from relatively strong demand and limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents is likely to support above-average growth over the medium term.”