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The harbourside city has outranked the likes of New York, Toronto, and Monaco in a global list measuring luxury residential rental growth.
Sydney’s trophy market ranks third among the top 10 global cities with the strongest growth in prime real estate rental prices, with a significant 6.7 per cent increase over the past 12 months to the first quarter of 2023, according to Knight Frank’s Prime Global Rental Index.
In addition to the city’s impressive annual growth figures propelling the NSW capital from 6th place in the previous quarter, the strong growth also helped Sydney’s prime market outpace annual rental price growth observed in the luxury residential markets across Toronto (10.3 per cent), New York (10.3 per cent), and Monaco (8.1 per cent).
Other upper-end city markets that rounded out the top 10 list were Tokyo (4.8 per cent), Geneva (3.4 per cent), Auckland (-0.8 per cent), and Hong Kong (-3.6 per cent).
Singapore and London were the only trophy markets to beat out the Australian city, notching annual rental gains of 31.5 per cent and 16.9 per cent, respectively.
During the first quarter of 2023, Sydney experienced the second highest growth in prime residential rents, with a notable increase of 5.3 per cent. This growth was surpassed only by Singapore, where luxury property rental prices rose by 6.4 per cent over the same three-month period.
Overall, rents in the 10 prime cities tracked by the index increased 8.5 per cent in the 12 months to March 2023, with rents in eight out of 10 markets hitting new records.
On a global scale, prime rents are now 14 per cent above the pre-pandemic high reached during the third quarter of 2019 and 21.7 per cent above the pandemic low reached during the first quarter of (Q1 2021).
In Sydney, prime rents are 15 per cent higher than their pre-pandemic high in the fourth quarter of 2018 and 21 per cent up from the pandemic low recorded in the second quarter of 2021.
Knight Frank head of residential research Michelle Ciesielski said rents in global luxury residential markets were continuing to see strong growth.
“While the rate of annual growth over the first quarter of this year slipped back from the 10.2 per cent recorded in the previous quarter, globally rents are still rising at a rapid clip,” she said.
She stated that this upward trend, observed since 2021, is a result of cities recovering from the pandemic, accompanied by a surge in global and domestic prime rental demand as workers relocate back to urban areas with the reopening of economies.
“Sydney’s prime residential rent growth is a somewhat consistent trend alongside the mainstream rental market, which recorded 15.3 per cent annual growth and 3.2 per cent in the first quarter of this year,” she added.
Knight Frank head of residential Erin van Tuil said the growth in rents across all residential property in Sydney was being driven by a combination of strong demand and a chronic undersupply.
“We are seeing this imbalance between demand and supply in both [the] affordable and luxury residential market, with very low vacancy rates, hence why Sydney prime residential rents have experienced strong growth over the past 12 months,” she said.
The expert highlighted one of the major factors driving strong growth in prime rents in the NSW capital are returning expats needing accommodation, as well as a rise in corporate rentals for new talent hires from outside Sydney.
Another factor tightening the rental dynamics in the city, according to Ms van Tuil, was the challenges faced by the construction industry.
“Construction delays due to labour and materials shortages are also contributing, as tenants are forced to rent for longer while their new builds or renovations are being completed,” she stated.
Interestingly, she also noted a rise a rise in film production crews looking to secure prime rental properties for extended periods, with short-stay nightly hotel rates having become increasingly more expensive and accommodation is harder to find as business travel ramps up.
“With housing construction volumes remaining low amid issues faced by the construction sector and fewer developers building product suitable for investors due to a focus on owner occupiers, rents in Sydney’s prime residential market are expected to continue to rise well above trend through 2023,” she forecast.
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