Average annual rental growth across a basket of 15 cities was 3.5% in the 12 months to the end of June 2024, says Knight Frank.

This is the same level seen in the first quarter of the year. This result halted the ongoing decline in annual rental growth that had been evident since growth spiked in early 2022.

The agency says the rate of annual rental growth remained at 3.5% in the second quarter of this year, the same level reached in the first quarter. While this rate is significantly lower than the average growth seen in recent years it is only slightly below the long-run pre-Covid average rate of 3.8%.

Although annual growth has slowed recently, quarterly growth has picked up, standing at 1.1% in Q2 – slightly above the long-run trend rate of 0.9%.

In Q2, 80% of markets saw rents rise on an annual basis, the same as last quarter. Hong Kong, Toronto, and Singapore are exceptions: rents in all three markets are under pressure due to relatively healthy new supply volumes.

The strongest market tracked was Sydney, where rents have risen by nearly 14% in the past year. The market in Sydney has been buoyed by strong immigration over the past two years, which surged after Covid restrictions were eased and has yet to be significantly offset by the delivery of new-build accommodation.

Tokyo, Berlin, and Frankfurt are the only other markets with rental growth above 5% in the past 12-month period. Key markets in Germany have experienced strong house price and rental growth over recent years, as demand for accommodation has significantly outpaced supply.

Prime rents are now 27% above their Q1 2021 level on average across our basket of cities. The biggest growth has occurred in five cities which have seen rents rise by more than 40% over the period, led by New York (57.1%) and London (56.5%).

Over recent years, rents have moved in opposite directions to house prices in luxury markets.

The Covid-inspired housing boom saw rents significantly underperform house prices through 2020 and 2021. Through 2022 and 2023, rents surged as workers flocked to cities following the end of rolling lockdowns, and house prices began to be impacted by rising interest rates, leading to significant rental outperformance. Affordability constraints in both the sales and rental markets appear to have conspired to push the two measures closer in the past two quarters.

Liam Bailey, Knight Frank’s global head of research, says: “The recent slowing in prime rental growth suggests an end to the substantial upward repricing of key city markets seen over recent years. Even the luxury sector is subject to affordability constraints, and in most cities, rental growth has moved closer to long-term trend levels. However, with the majority of markets still experiencing pressure from relatively strong demand set against limited supply – exacerbated by Covid-era development disruptions – upward pressure on rents is likely to support above-trend growth in the medium term.”

Percentage prime rental growth since Q1 2021 

Source: Knight Frank