Residential rental values fared better than capital values over 2019 with an average annual increase of 1.2 per cent, up from 0.4 per cent in 2018, compared with a 0.1 per cent 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 per cent increase, compared with 0.8 per cent in the first half.

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 per cent across the index as a whole, compared with 3.0 per cent the previous year.

Los Angeles remains the highest yielding city in the Savills Index, at 5.5 per cent. 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 per cent 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.

In Europe, Moscow is the second highest yielding city, at 5 per cent, and the top performer for rental growth over the year, with a 3.8 per cent increase. The prime rental sector here has seen high levels of activity, primary driven from corporate tenants. Unlike the largely domestic sales market, the rental market has a high share of international interest.

Both Berlin and Paris outperformed their European counterparts in terms of capital growth at 8.8 per cent and 6.4 per cent respectively. Rental values in Berlin, however, experienced a -0.6 per cent fall in the second half of the year, despite a 2.8 per cent rise for the year. The uncertainty around rental caps has had an impact on investor sentiment in the city. Similarly prime rents in Paris have remained flat following the introduction of rent controls in July 2019.

Cities in Asia Pacific are largely lower yielding, with the bottom 10 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 per cent) as some stock starts to look overpriced. Kuala Lumpur saw one of the largest falls over the year (-4.1 per cent) along with Dubai at -5.0 per cent. 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.

Further information

Contact Savills World Research