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Singapore, New York tied in top spot for highest prime rental growth in 1H2022

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Both Singapore and New York were tied in first place with rental growth of 8.5%, followed by London with 7.7% in the first six months of 2022 (Photo: Albert Chua/EdgeProp Singapore)

SINGAPORE (EDGEPROP) - Skyrocketing rents from December 2021 to June 2022 propelled Singapore to the top spot of Savills Prime Residential World Cities Rental Index for 1H2022. Both Singapore and New York were tied in first place with rental growth of 8.5%, followed by London with 7.7% in the first six months of 2022.

“Megacities are once again thriving as tenants are drawn back to urban living after the lifting of lockdowns,” comments Paul Tostevin, head of Savills world research.

“Stock shortages and pent-up demand for city living, boosted by the re-opening of international borders at the end of 2021, have continued to fuel growth,” he adds. “A revival of corporate travel, purchasers ‘trying before they buy’, and a prioritisation of the home, thanks to flexi working patterns, are all factors driving growth in the prime rental markets of the world’s leading cities.”

Savills is projecting a 20% growth for Singapore’s non-luxury residential property by end -2022, after an 8.5% increase in 1H2022 (Source: Savills Singapore)

A lack of inventory will continue to fuel growth in the near term, especially for the type of residences prime tenants are demanding: centrally located, quality units with larger floor plates, adds Tostevin. “For these properties, the Covid lockdown rental situation is definitely a thing of the past.”

New York rents hit record high

Despite the broader US trend of migration to smaller cities, particularly across the tech sector, the Big Apple continues to draw from a deep demand base, says Savills, and is forecast to maintain low vacancy rates over the summer, its strongest season for rentals. New York rents hit a record high, driven by tight inventory and demand for larger spaces, for which renters are willing to pay a premium, according to Savills.

Singapore is no different. “The shortage of inventory arises from landlords repossessing their large luxury homes to enjoy privacy as they continue to work from home,”  says Alan Cheong, head of Savills research & consultancy Singapore. He is projecting a 20% growth for Singapore’s non-luxury residential property by end-2022.

In Lisbon, Miami and Dubai, rents have all exceeded 5%, benefitting from the wider lifestyle trends seen in other markets. Topping the Savills Executive Nomad Index, demand for prime residences in Lisbon remains strong, with tenants attracted to a comparatively affordable global location offering a high quality of life, more space and lower living costs.

By contrast, Asian cities such as Hong Kong, Shenzhen and Hangzhou saw more muted performance, as they continued to battle challenges related to Covid-19.

Source: Savills Research

Prime residential rental growth outpaces rise in capital values

Rising interest rates and increased global uncertainty notwithstanding, prime residential rental growth increased by an average of 3.1% across the Savills World Cities Index in 1H2022.

The resilience of the world’s residential city property markets has continued in the first half of 2022, with 90% of the cities in the Savills Index reporting positive capital value growth.

Across the 30 cities covered by the Savills World Cities Prime Residential Index, capital values grew by an average of 2.4%. This growth was driven by continued positive market sentiment, still relatively low interest rates, constrained supply, and the comparative attractiveness of prime residential property as an investment.

US cities continue to dominate the leaderboard

US cities continued to dominate the leaderboard when it came to rising capital values. Miami took the top spot for prime capital value growth once again, recording a half-year rise of 12.5%. The city’s low tax and high quality of life encouraged migration from other US locations. Joining Miami at the top are Los Angeles, San Francisco, and New York, which all saw capital value growth in excess of 4% in the six months to June 2022.

Prime capital values for San Francisco and Los Angeles have surpassed their pre-pandemic levels, while New York City has yet to reach its 2017 peak. “The migration of wealth throughout the US is more prevalent than ever,” says Rory McMullen, head of North America desk, Savills Private Office.

“While there are early signs that inflation and rising interest rates are slowing some of the prime markets, the increase of flexible working patterns and the movement from high-tax states continue to drive investment,” notes McMullen.

Source: Savills Research

Dubai, the only non-US city among the top five

Dubai became the only non-US city among the top five, with prime prices growing 4.7% during the first half of the year. The city is forecast to see strong capital growth continue for the remainder of 2022.

Aided by the inflow of high-net-worth individuals (HNWIs) and the success of its Golden Visa scheme, the UAE is predicted to continue to attract HNWIs at above pre-pandemic levels. Dubai continues to channel investment into the city’s infrastructure, improving its leisure and tourism offering with the aim of retaining and attracting talent and businesses.

In Europe, the prime residential markets of Berlin and Milan have benefitted from diversified economic and cultural offerings, supporting a broad buyer base, according to Savills.

Amsterdam and London, both characterised by lack of stock, have continued to see growth. However, the return of international buyers has been slower than projected, leading to slower recovery.

Geopolitical uncertainty, higher inflation and interest rates weigh on sentiment 

Some Asia Pacific markets are feeling the effects of the Covid-19 pandemic more acutely, while most global cities are experiencing the impact of geopolitical uncertainty, higher inflation, and rising interest rates. However, this has yet to have a material impact on prices in prime markets.

Seoul and Singapore’s prime residential sectors are benefitting from the resilience of their economies. The opening of Thailand’s international borders is expected to boost Bangkok’s prime market in the second half of 2022.

“Looking ahead, growth is set to continue but at a lower rate,” says Lucy Palk, analyst, Savills world research. “We forecast capital value growth across the 30 global cities to average 2.2% in the second half of this year.”

Inflation and rising interest rates are expected to weigh on buyer sentiment. Prime residential property, however, is less reliant on debt financing, notes Palk, and remains an attractive asset for wealth preservation and capital growth prospects.

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