Real Estate

Global Residential Rents Grow 3x Faster Than Pre-Pandemic

Global residential rents have increased by 7.5% in the year to June, eclipsing the pre-pandemic annual growth average of 2.2% observed from 2010 to 2020.

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Global rents have skyrocketed as real estate markets adjust to rising interest rates and a post-pandemic world.

The latest Prime Global Rental Index from Knight Frank (PGRI) has revealed that rental costs worldwide have increased by 7.5% in the year to June. While this represents a slight easing compared to Q1’s 8.2% and the phenomenal 12.2% growth in the first quarter of 2022, it still eclipses the pre-pandemic annual growth average of 2.2% observed from 2010 to 2020.

The report, which covers ten cities across the globe—namely Singapore, London, Sydney, Toronto, Auckland, New York, Geneva, Tokyo and Monaco—has grown mainly across the board, with all cities but Hong Kong showing increases in rental prices year on year.

Post Pandemic Recovery

Over the past two years, New York, Singapore, and London have been leading the pack regarding rental growth recovery post-pandemic—boasting increases of 56%, 53%, and 51%, respectively, from Q1 2021 to date. While growth paces are slowing in these areas, average rents are still well above where they were prior to the Covid-19 pandemic.

With such astronomical growth rates, the question of housing affordability is rapidly climbing the global political agenda.

What’s Driving the Increase?

A triumvirate of factors is propelling this growth:

  • Return to Urban Areas: With lockdown measures easing, people are flooding back into cities, driving up demand for rentals.
  • Affordability Squeeze: Central bank rate hikes have priced many prospective buyers out of the market, leaving them with no option but to rent. In some locations, this has also had the effect of driving landlords out of the market, therefore squeezing inventory even further.
  • Supply Chain Disruption: The construction industry has not kept pace due to disruptions in supply chains and labour availability throughout the pandemic, meaning fewer new properties have entered the market.

New York, New Solutions?

While rents in major capitals have been rising thanks to the increased demand, New York’s growth has started to slow as affordability constraints start to “top out”. Despite the low inventory of available properties, there are simply fewer people able to afford the increasing rents as payments hit an ever-higher share of average household income. Knight Frank reports that this is a phenomenon likely to be replicated across other major capitals.

New York represents an interesting case in how supply-side solutions could potentially ease rental growth. There is increasing talk of converting older office stock to residential properties, but the viability of such projects is hampered by inflating material and labour costs.

What’s Next?

While the growth rate is likely to moderate in many cities, the lack of progress on new housing deliveries means high rents are here to stay for the foreseeable future. It’s clear that the world’s housing markets are heading into uncharted waters. This isn’t merely a post-pandemic boom but potentially a new norm that poses a unique set of challenges for policymakers, tenants, and landlords alike.

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