Hong Kong has retained its crown as the world’s most expensive city to rent a luxury apartment, followed by New York, Singapore and London in fourth place.
Prime rents in Hong Kong averaged US$6.7 per sq ft at the end of 2020, meaning a tenant with a budget of US$10,000 per month would be able to rent less than 1,500 sq ft.
The comparisons, carried out by Knight Frank, are based on a three-bedroom apartment in a central location and reveal that New York is the second most expensive market with US$10,000 a month providing 2,250 sq ft on average.
Next comes Singapore, London and Sydney where renters can get between 2,500 and 3,000 sq ft with US$10,000.
Of the eight cities tracked, Dubai and Madrid offer the largest space in return for rent of US$10,000 per month – 4,800 and 5,000 square feet respectively.
Knight Frank claims that one of the key reasons people choose to rent in expensive locations is due to raised purchase, ownership and sales costs in recent years.
As an example, foreign buyers looking to purchase in markets such as Hong Kong and Singapore would have to pay between 15% and 20% in additional stamp duties on top of existing rates for domestic buyers, making renting a more attractive option.
Prime renters also seek flexibility and an the opportunity to ‘try before they buy’.
Pandemic impact on prime rents
Two key sources of demand for prime rental properties in first tier cities are often corporate tenants and international students, who were amongst the first to head home or relocate temporarily when the pandemic hit. The resulting uptick in supply put pressure on rents and saw landlords forced to change their strategy to avoid lengthy void periods.
Rents in prime central London and Manhattan both fell 14% in the year to February 2021. However, the rate of rental declines is slowing and new lease signings are recovering in both markets. Motivated by large discounts, prime tenants are making their move back into some city centres hopeful of shorter commutes post the pandemic.
Whilst domestic demand looks to be strengthening in some cities, the easing of travel restrictions will be the key determinant for the recovery of prime rental markets globally.
Knight Frank’s Head of Prime Central London Lettings, David Mumby comments: “As soon as the passenger numbers return via the main transport hubs, we will see fairly a rapid correction of the recent rent reductions.
“Stock will return to the short-term Airbnb rental market and with a normalisation of office occupancy, the undersupply of prime property will drive rents upwards. We are already seeing this starting to materialise in certain areas for the very best properties and it’s only a matter of time before this feeds through to the wider market.”