Sydney tops international chart for luxury rentals

SYDNEY has beaten 15 cities to the top of an international chart for luxury rents, according to new research.

But even the well-heeled are starting to feel the cost-of-living pinch, Knight Frank researchers admit.

While the harbour city beat 15 cities on the Knight Frank Prime Global Rental Index – with a 13.9 per cent rise over the past 12 months – rents have fallen dramatically over the first two quarters of 2024.

Knight Frank Australia Chief Economist Ben Burstonsaid: “The Sydney rental market has tightened significantly due to strong immigration over the past two years, which surged after Covid restrictions were eased, and has yet to be significantly offset by the delivery of new supply.

“However, the pace of growth is now easing, with Sydney’s quarterly growth rate falling from 4.5 per cent to 0.9 per cent in Q2, indicating that affordability is becoming a constraint on the rental surge, while the rental market has also benefitted from a rise in listings in recent months. 

“While growth has slowed, upward pressure on rents is likely to persist until investor demand for new apartments is strong enough to drive a substantial injection of new supply.” 

Knight Frank Global Head of Research Liam Bailey said: “The recent slowing in prime rental growth suggests an end to the substantial upward repricing of key city markets seen over recent years.

“Even the luxury sector is subject to affordability constraints, and in most cities, rental growth has moved closer to long-term trend levels.  

“However, with the majority of markets still experiencing pressure from relatively strong demand set against limited supply – exacerbated by Covid-era development disruptions – upward pressure on  rents is likely to support above-trend growth in the medium term.” 

Rachel Keeley, Senior Portfolio Manager at McGrath, Knight Frank’s partner in Australia, said: “The demand for luxury rentals in Sydney is steady, driven by a combination of limited supply and a growing appetite for high-end living spaces. Properties in prime locations such as Barangaroo and the CBD are particularly sought after.”

Sydney’s annual growth rate was almost 3 per cent higher than Tokyo, which saw an 11 per cent rise in luxury rents over the 12 months to the end of Q2. Berlin came in third, with annual growth in prime rents of 6.9 per cent.

Average annual rental growth across the 15 cities was at 3.5 per centin the 12 months to the end of June 2024, remaining at the same level seen in the first quarter of the year. 

The result halted the ongoing decline in annual rental growth that had been evident since growth spiked in early 2022. 

Since Q1 2021 prime rents in Sydney have risen by 40.9 per cent, sitting behind New York recording the highest growth at 57.1 per cent, followed by London (56.5 per cent), Miami (45.8 per cent) and Singapore (41.4 per cent).

These are the only five cities to record growth of more than 40 per cent over this time. 

Across the 15 key cities, prime rents are now 27 per cent above their Q1 2021 level on average.