A year ago prime rents worldwide were rising on average by 3.5% per annum but this figure has now slipped to 1.3%. The number of cities recording flat or positive growth however has stayed much the same (14 of the 18 cities).
The change is due to the slowdown in emerging markets such as Nairobi and Dubai which were seeing double-digit annual increases a year ago. In Moscow, prime rents have historically been US Dollar denominated but the weakness of the Rouble against the US Dollar has led an increasing number of landlords to swap their rents into Roubles. In US Dollar terms prime rents fell 42% on an annual basis but by only 5% in Rouble terms. For the index’s purposes we track the movement in prime rents in local currency.
Prime residential rents in Dubai inched down 0.6% quarter-on-quarter in the first three months of this year, the first fall since mid-2011. This was broadly in line with the UAE’s non-oil economy which grew at a notably weaker pace in the first quarter of 2015. This is likely to have hit confidence, and thus tenant demand for luxury residential properties in the emirate.
The synergy between the global economy and luxury residential rents is increasingly clear. Prime rents proved a lead indicator of the downturn in 2008 and apart from a brief divergence in 2011 have remained closely tied.
On this basis, the health of the global economy will determine the future direction of the index. The immediate concern is how the Greek crisis plays out but in the long term the problem will be finding a new engine to stimulate growth, be it the US, China or recovering emerging markets.
