Contents
1. Rent analysis
2. Yield analysis
Prefe(rent)ial
Rents continue to outperform capital values, though declining interest rates mean that the scale of the outperformance is lessening. As more prospective buyers are attracted to the purchase market for prime residential property, they are less active in the prime rental market. In the six months to December 2024, rental values grew by an average of 1.9% across the World Cities Index. This is in addition to the 2.3% growth in the first half of the year.
25 of the 30 markets within the rental index saw positive rental value growth over the year, as many potential buyers, and indeed new residents to many markets, choose to rent prime residential property.
Dubai continues to move from strength to strength in its prime rental market. With a surge of new residents from across the region and the globe, many may choose to rent a property in the market before they decide where and when to buy. As a result, prime rental values have increased by 23.5% over 2024, surpassing the 2016 market peak.
The prime residential rental market in Bangkok saw a 15.4% increase in prices in 2024, driven by strong demand from high net worth individuals, increased tourist arrivals, and a growing number of expatriates. The steady recovery of the hospitality and business sectors further enhanced demand for prime rental properties.
Kuala Lumpur has seen a 12.2% increase in prime rental values as a result of stronger market sentiment and confidence in the prime residential market. The trend can be associated with the increased demands for short- term stays, especially with the return of tourists due to the visa-free policy for Chinese and Indian travellers.
The rental market in Lisbon is experiencing a period of slower growth in rental values, with growth of 2.8% in the second half of the year, showing signs of entering a period of stability compared to the pronounced increases observed in the past. Rents in Lisbon remain up 10.5% on the year; however, after a 30% rise within a year over 2023, new rental contracts have naturally slowed the pace of growth.
Other European cities have seen strong rental growth in 2024, with Barcelona, Amsterdam, Madrid, and Athens each reporting increases of more than 5% for the year. In Spain, the market has remained highly active, driven by demand from senior executives relocating to Madrid or Barcelona. Supply remains scarce in both markets, supporting the upward trend in rental prices.
Lower levels of high-quality rental stock are also contributing to prime rental increases in Amsterdam and Athens, with legislative changes in Amsterdam, such as the Affordable Housing Act, expected to affect demand positively for prime residential housing as private rental supply decreases.
6 month & 1 year rental growth by city
With the residential sales market in the United States moving slowly because of higher interest rates, many prospective buyers have turned to the prime rental markets in key cities across the country. New York, Los Angeles, and San Francisco have each seen prime rental price growth of over 3% in 2024. Miami is also seeing elevated rents, with increases of 1.6% on the year.
Cities in China and Singapore have tended to see less robust rental growth over 2024. In Singapore, there was an increase in rental transactions in the prime areas, particularly for the smaller one- and two-bedroom units.
This can be attributed to growing demand from tenants that were previously priced out of these market segments in the past few years and have moved to other less costly accommodations. The softer rents and ample supply from new completions have driven such demand. Some Chinese cities have seen rental price falls over 2024, including Beijing (-0.1%), Hangzhou (-0.6%), Guangzhou (-2.3%), and Shenzhen (-3.5%). Demand across these markets has yet to recover to pre-Covid levels and the market for rental properties, both prime and mainstream, remains challenging.
Average weekly prime rents
RENTAL MARKET OUTLOOK
While interest rates remain elevated, many would-be buyers will likely continue to turn to the prime rental markets. For 2025, prime rental prices are forecast to see a slight increase for the 30 cities covered in the World Cities Index, but this growth will likely remain below the historic average.
Dubai is forecast to lead the index for rental growth in 2025 with a projected increase of more than 10%. The market has seen a surge in demand from domestic and international renters who are looking to obtain a piece of the Dubai lifestyle.
Markets which are anticipated to see slight rental price falls include Beijing, Shanghai, Hangzhou, and Guangzhou. Each of these markets is forecast to see rental prices decline by an average of between <0% to -1.9% for 2025.
Yielding to rental growth
Average prime yields moved out slightly in 2024 as rents continued to outperform capital values. Across an average of all world cities, prime gross yields moved out by five basis points in 2024 to 3.15% as global rental markets recorded stronger growth than the sales markets.
Yields moved out fastest in Dubai, to 5.3% (+60 bps), which has seen record-breaking rental growth over 2024, and in Kuala Lumpur to 4.3% (+38 bps) where a shortage of prime residential supply and increasing numbers of expats are supporting prime rental growth.
Other high-yielding cities include New York, Cape Town, and Amsterdam – three markets which have seen high levels of rental growth over the course of 2024.
While each location is forecasting strong capital value growth over 2025, rents are expected to continue to outperform, which should support higher yields.
Average regional yields are the highest in North America, where the persistently high mortgage costs have pushed more prospective buyers into rental markets across the United States. Yields in US cities stand at 4.5% on average, an increase of 20 bps from December 2023.
While increasing inventory in 2025 should give buyers more options, elevated mortgage rates would continue to challenge affordability. Households may choose to rent longer, potentially putting upward pressure on rents but supporting further yield growth.
Prime yields average just 2.4% across Asia Pacific world cities, up 10 bps from last year. This is a region where home ownership is especially coveted as a store of wealth, a trend that has fuelled capital value growth and kept yields low over the last two decades. Yields in Kuala Lumpur saw the greatest increase in the region in 2024, followed by Bangkok with yield growth of 21 bps in 2024. Bangkok’s forecast for 2025 indicates a potential increase in rental growth compared to 2024. This expectation is driven by continued economic recovery, an anticipated rise in expatriate relocations, and robust demand for high-quality rental properties in prime areas as business activities and international mobility improve.
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