Residential rental values fared better than capital values over 2019 with an average annual increase of 1.2%, up from 0.4% in 2018, compared to a 0.1% increase for capital values over the same period, according to the Savills World Cities Prime Residential Rental Index. However, as with capital values, rental growth slowed in the second half of the year, with an 0.3% increase, compared to 0.8% in the first half.
The prime residential rental in key global cities
Sophie Chick, head of Savills World Research, said, “In the first half of 2019, average annual rental values in the index outperformed capital values for this first time since 2008 and this continued in the second half of the year. As prime residential capital value growth is forecast to remain at modest levels, the search for income will be increasingly important for global investors and the prime residential sector in key global cities can provide appealing yield potential.”
Average yields increased in 2019, after being on a downward trend since December 2014, as rental growth outpaced price growth, standing at an average of 3.2% across the index as a whole, compared to 3.0% the previous year.
Los Angeles remains the highest yielding city in the Savills Index, at 5.5%. Yields have been pushed upward due to a shift from buying to renting, particularly among younger age groups. The city also saw the highest increase in rents over 2019 with a 6.1% increase.
US cities generally saw capital values fall throughout 2019 as a result of tax changes and oversupply in some key markets, yet the rental markets have performed well, both in terms of yields and rental growth.
|
City |
Yield |
Rental growth-1 year (2019) |
Rental growth-6 month (H2 2019) |
Capital value (Dec 2019) US$PSF |
|
Los Angeles |
5.5% |
6.1% |
2.0% |
$1,370 |
|
Moscow |
5.0% |
3.8% |
1.4% |
$1,280 |
|
Cape Town* |
4.7% |
n/a |
-2.0% |
$310 |
|
Dubai |
4.6% |
-5.0% |
-2.5% |
$580 |
|
Bangkok* |
4.6% |
n/a |
-2.2% |
$880 |
|
New York |
4.5% |
3.4% |
2.9% |
$2,510 |
|
Miami |
4.0% |
4.8% |
2.9% |
$960 |
|
Amsterdam* |
3.8% |
n/a |
n/a |
$930 |
|
Kuala Lumpur |
3.6% |
-4.1% |
-4.1% |
$280 |
|
Barcelona |
3.5% |
1.0% |
0.3% |
$650 |
|
San Francisco |
3.4% |
2.8% |
2.2% |
$1,550 |
|
Tokyo |
3.4% |
1.9% |
-0.1% |
$2,160 |
|
Paris |
3.2% |
0.0% |
0.0% |
$1,590 |
|
Berlin |
3.0% |
2.8% |
-0.6% |
$990 |
|
Madrid |
3.0% |
0.7% |
0.6% |
$720 |
|
London |
2.9% |
-0.6% |
0.2% |
$1,920 |
|
Seoul* |
2.7% |
n/a |
4.2% |
$1,480 |
|
Mumbai* |
2.7% |
n/a |
0.0% |
$1,290 |
|
Sydney |
2.6% |
0.0% |
0.0% |
$1,670 |
|
Singapore |
2.5% |
0.6% |
-0.3% |
$1,580 |
|
Hong Kong |
2.2% |
-0.4% |
-1.7% |
$4,610 |
|
Beijing |
1.7% |
0.3% |
-0.3% |
$1,440 |
|
Shenzhen |
1.7% |
2.5% |
1.2% |
$1,480 |
|
Hangzhou |
1.7% |
1.5% |
0.7% |
$980 |
|
Shanghai |
1.5% |
1.3% |
1.8% |
$1,760 |
|
Guangzhou |
1.5% |
0.8% |
-0.2% |
$1,170 |
Savills World Cities Prime Residential Rental Index 2019 – cities ranked by gross prime residential yields.Source: Savills Research (*new addition to the index and therefore historical data not available)
Asia Pacific
Cities in Asia Pacific are largely lower yielding, with the bottom ten cities for average yields all located in this region. Bangkok, Kuala Lumpur and Tokyo buck this trend when it comes to yields however their rental growth is more of a mixed picture. The Japanese capital has seen strong growth over the past few years however rents fell marginally in the second half of the year (-0.1%) as some stock starts to look overpriced. Kuala Lumpur saw one of the largest falls over the year (-4.1%) along with Dubai at -5.0%. Both markets are facing oversupply and, therefore, renters have a lot of choice, and negotiating power.
When it comes to weekly rents for a prime house, Hong Kong remains top of the price league at just over $7,000 per week. However, when it comes to the apartment market, it is tipped by New York, the only city in the index where the average weekly rent for an apartment is higher than a house. This reflects the high-quality supply of apartments at the top end of the market and their prime locations.
Mr. Nguyen Khanh Duy, Sales Director of Savills Vietnam, Residential Sales, said, “We have seen a considerable decline in new product launched in 2020 compared to 2019 which is easing some concerns of oversupplying the market. Nonetheless, it will be more challenging for investors to identify opportunities in the primary market which will only further drive value for existing product on the secondary market. In addition, with the lack of available land and new construction in core areas of HCMC, price per square meter for newly built in these districts is at an all-time high. Investors buying into these districts anticipate lowering their investment risk as they view the overall location as very stable. Rental yield in Ho Chi Minh City, however, experienced a drop in the second half of the year due to an increase of new completed apartments supply”.