A chronic undersupply of existing rental stock and low construction volumes have fuelled a surge in Sydney’s prime rents, with the city jumping to third on a global list measuring luxury residential rental growth.
The latest Knight Frank Prime Global Rental Index for the first quarter of 2023 showed Sydney has risen from sixth place at the end of 2022 to third place at the end of March this year, with prime property rents soaring 5.3 per cent in the first three months of the year.
Annually, Sydney’s prime property rents have climbed 11.7 per cent.
The harbour city is in third place for annual growth, behind Singapore (up 31.5 per cent) and London (up 16.9 per cent).
However, Sydney recorded the second-highest quarterly growth for the three months to March and the second-highest six-month growth, both behind Singapore, with 5.3 per cent and 9.2 per cent hikes respectively.
Knight Frank Head of Residential Erin van Tuil said the growth in rents across all residential property in Sydney was being driven by not only strong demand, but 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.
“Total residential rental vacancy was 1.3 per cent at the end of March across Greater Sydney according to REINSW.”
Ms van Tuil said expats returning to Sydney and a rise in corporate rentals for new talent hires from outside the city were also driving prime rent growth.
“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 said.
“We are also seeing 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 products 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.”
The PGRI increased 8.5 per cent in the 12 months to March 2023 across the 10 cities tracked around the globe, with rents in eight of the markets hitting new records.
Globally, prime rents are now 14 per cent above their pre-pandemic high (Q3 2019) and 21.7 per cent above the pandemic low (Q1 2021).
By comparison, in Sydney, prime rents are 15 per cent higher than their pre-pandemic high (Q4 2018) and 21 per cent more than the pandemic low (Q2 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 in 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.
“This is continuing the trend that started in 2021 as cities recovered from the pandemic and we saw a surge in both global and domestic prime rental demand as workers moved back to cities as economies reopened.
“Sydney’s prime residential rent growth is a somewhat consistent trend alongside the mainstream renal market, which recorded 15.3 per cent annual growth and 3.2 per cent in the first quarter of this year.”