A total of seven cities saw rental values increase in the first six months of 2020. Seoul stands out with the highest rental growth of the cities in our index, up 8.5% in the first six months of 2020. South Korea has a unique leasing arrangement, known as the Jeonse system. Tenants pay the landlord a refundable deposit, equivalent of 70–80% of the property value, often borrowed from a bank, and then use the property rent-free. The recent low interest rates, combined with limited supply, have caused rent rises.

Supply and demand dynamics

A handful of cities saw rental values remain fairly resilient in the first six months of the year, experiencing a small rise in rental values. Some rental markets continued to be driven by tight supply, including Amsterdam, Paris, and San Francisco. Meanwhile, other markets were driven by a change in demand during the pandemic, which was the case for Singapore. Here, there has been an increased demand for smaller prime units as the co-living providers fell out of favour with tenants in the current climate.

In the US, the demand for space has been a significant driver of rental values in both directions. As tenants generally looked for properties with more space, away from densely populated areas, Miami and Los Angeles benefited while demand in New York fell where there is already an oversupply of properties.

In addition to New York, a number of other cities are also grappling with existing supply outstripping demand, including the likes of Bangkok, Dubai and Mumbai which all saw prime rental values fall in the first half of the year.

Sydney falls the most

Sydney saw the largest fall in prime rental values for the first half of 2020, down 7.1%. There is an oversupply of rental properties on the market here, while the Covid-19 pandemic saw a fall in corporate tenants and short-term rental properties enter the long-term market, further worsening the supply and demand imbalance. The same factors also drove falls in other cities, with the likes of Cape Town seeing an influx of rental properties previously on the short-term market. Moscow also saw a fall in demand from corporate tenants, unlike the purchaser market, international and corporate tenants drive the prime rental market here, demand from these groups has consequently fallen sharply as a result of Covid-19.

In Mainland China, rental values generally held up less well than prices in the first half of the year as demand fell on the back of decreased mobility within the country. In Hong Kong, prime rental values saw the second largest fall for the first half of the year, after Sydney. Economic activity in the city has been widely disrupted by Covid-19, additionally, political uncertainty is also dampening values.

_{Read the articles within Savills Prime Index: World Cities below.}