Capital Values

Across the 30 cities covered by the Savills World Cities Index, capital values grew by an average of 2.4%. North American cities have performed the strongest in 2022 so far, closely followed by Europe’s major cities.

North American cities have performed the strongest in 2022 so far, followed by cities in Europe. Some APAC markets are still more acutely feeling the effects of the Covid-19 pandemic, while most global cities are experiencing the impact of geopolitical uncertainty, increasing inflation, and rising interest rates, albeit yet to materially impact pricing in the prime markets.

Hybrid working is likely here to stay, so re-evaluating priorities and a changing of lifestyle have led prime purchasers to demand greater indoor and outdoor space, as well as focusing on purchasing the right property in a central, well-connected location.

Between December 2021 and June 2022, 90% of the cities in the Index reported positive capital value growth. 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. In all but three cities (Cape Town, Barcelona and Mumbai), prime capital values have now exceeded pre-pandemic levels.

Quality of life remains a priority for buyers

Miami once again holds the top spot for prime capital value growth, recording a half year rise of 12.5%. Lower taxes and a high quality of life encouraged migration from other US locations, fuelling the city’s success. In common with Miami, Dubai, Lisbon and Cape Town also benefited from the renewed appreciation for a warmer climate, higher quality of life, and increased desire for more space.

In Dubai, prime prices grew by 4.7% during the first half of the year and the city is forecast to see strong capital growth continue for the remainder of 2022. Aided by the inflow of high net worth individuals and the success of its Golden Visa scheme, the UAE is predicted to receive 4,000 millionaires relocating to the country in 2022, four times the pre-pandemic norm of 1,000 per annum, according to Henley & Partners. 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.

North American cities: Los Angeles, San Francisco, and New York, all saw capital value growth in excess of 4% in the six months to June 2022. San Francisco and Los Angeles prime capital values have surpassed their pre-pandemic price levels, whilst New York City is yet to reach its 2017 peak. Low stock levels, coupled with the connectivity and economic opportunity that Los Angeles offers, all helped to boost its prime residential prices.

Turning to Europe, the prime residential markets of Berlin and Milan have benefited from diversified economic and cultural offerings, supporting a broad buyer base. Amsterdam and London, meanwhile, both characterised by a lack of stock, have continued to see growth, though fewer than expected international buyers slowed that growth in the first half of 2022. In Paris, prime residences with large floor plans in central locations are performing best. Paris also offers comparative value in a global context, with prime property prices at $1,600 per square foot (€15,500 per square metre), 25% less than Geneva and 15% less than London.

Seoul was the strongest performer in the Asia Pacific region, despite headwinds in the form of rising interest rates that increased to 1.75% in May, the highest level since summer 2019. Prime prices have risen by more than 10% in the South Korean capital in the last 12 months, and are forecast to continue growing for the remainder of 2022. One of Asia Pacific’s most important cities, Seoul’s resilient economy supports a strong domestic purchaser base.

Capital values in Chinese cities we monitor peaked in June 2021 and have since softened as the country deals with the Covid-19 pandemic, coupled with wider economic uncertainty, impacting buyer sentiment, despite government stimulus measures. Economic headwinds and the high ratio of debt within the real estate industry are proving difficult to counteract from a policy level. Of our 30 global cities, Hong Kong has suffered the most, and a challenging outlook alongside rising construction costs has led developers to pause new projects.

Outlook

• Inflation and rising interest rates will weigh negatively on buyer sentiment, but prime residential property is less reliant on debt financing, and remains an attractive asset for wealth preservation and capital growth prospects.

• Growth is set to continue, but at a lower average rate. Capital value growth across the 30 global cities we monitor is forecast to average at 2.2% in H2 2022, slightly lower than the 2.4% recorded in the first half of 2022.

• Dubai is set to perform the strongest for the remainder of 2022, followed by Madrid, Barcelona and Milan. Despite rising interest rates, Seoul and Singapore’s economies remain resilient and benefit their prime residential sector, while the opening of Thailand’s international borders will boost Bangkok’s prime market in the second half of 2022.

• The outlook is more muted for Hong Kong, Sydney, Kuala Lumpur, Shanghai and Hangzhou, where local economic conditions will weigh more heavily on prime markets.

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