- Sydney's luxury rental market recorded 13.1% growth.
- Demand from returning residents and supply scarcity drove soaring rents.
- Construction delays and film industry pressure intensify Sydney's luxury rental crunch.
Sydney’s most pricey rentals are set to get even more expensive, with the city’s luxury rental growth having shot up from 11.7% to 13.1% when compared to the last quarter, deviating from the worldwide slump in rental growth, according to Knight Frank’s latest report.
Prime rents down, but still elevated
Average prime rents in major world cities were increasing rapidly, with an annual growth of 7.5% in the 12 months to June, according to Knight Frank’s Prime Global Rental Index (PGRI) for the second quarter of 2023.
The PGRI provides quarterly reports of luxury lettings market patterns across 10 major city markets globally.
While the Q2 rate was below the 8.2% seen in Q1 this year and the 12.2% peak in Q1 2022, the present growth is still significantly higher than the norm. To illustrate, the pre-pandemic average annual growth of the 10 years to 2020 was 2.2%.
However, from the beginning of 2021, the market’s recovery from the early shock of COVID-19 has brought about an average growth of 6.6%, thrice the pre-pandemic average.
Knight Frank head of residential research, Michelle Ciesielski, said that the main factors behind the rental growth trend are a high demand from residents returning to cities post-lockdown, buyers being priced out of sales markets due to price rises driven by interest rate increases, and a scarcity of new supply caused by problems in construction throughout the pandemic.
The second runner-up in luxury rental growth
Sydney’s annual luxury rental growth of 13.1% was the third highest, according to the PGRI, behind London’s 14.4%, and Singapore’s 24.5%.
Knight Frank Prime Global Rental Index (Changes to Q2 2023)
Luxury rents in the capital city experienced the most substantial growth over the past six months, at 8.7%, and the second highest growth over the past three months, at 3.2%.
“The overall index has risen by 23% from Q1 2021 to date,” Ciesielski said.
“Growth in specific cities has been even stronger, with New York, Singapore, and London seeing rental growth of 56%, 53%, and 51% respectively over the same period.
“While some of the PGRI growth hubs have seen a moderation in the pace of rent rises, including Singapore, London and New York, and the index overall shows a fall in the pace of rental growth, Sydney is seeing the opposite trend with annual growth increasing compared to the previous quarter.”
Ciesielski remarked that while rental growth will eventually stagnate, the dearth of new stock being delivered means that high rents will remain the norm.
Little hope on the horizon
“A chronic undersupply of rental homes currently extends to most parts of Sydney at every price point, and this continues to be reflected in the double-digit rental growth for luxury property being recorded,” said Knight Frank head of residential, Erin van Tuil.
“In affluent areas, there tends to be at least one home in the street having some type of renovation work done, and many take up a rental home while these works are being carried out. Construction delays over the past few years have meant these prime rental homes are required for double or triple the time than first expected while they wait for tradespeople and prime cost items from around the world to be delivered to finish the job.
“We continue to experience a skills shortage in Sydney, and this extends to the executive level who are most likely going to need a prime residential home provided when lured to work here. Elevated rents are being paid to secure a prime rental home until they settle into the city.
“In the past few months, there has been an increasing number of box office movies being filmed in Australia with actors and production crew using Sydney as their base, placing further pressure on the top end of our rental market.”