Capital values

Following two years of staggering growth, many of the prime residential world city markets are set for a slowdown in 2023 with an average price growth of 0.5% forecast across the 30 global cities monitored by Savills in its Prime Residential World Cities Index.

Of the 30 major global cities tracked, 17 will record slower capital value growth than in 2022. However, 13 cities are expected to register equal or even slightly enhanced growth in 2023.

“The regional hubs of Dubai and Singapore are forecast to top the global price growth charts in 2023. Both cities will continue to see sustained inflows of high net-worth individuals, however they are not immune to higher interest rates and wider economic headwinds. Dubai’s forecast prime price growth of between 6% and 7.9%, for example, is lower compared with the 12.4% growth it recorded in 2022. However, there is still some headroom for growth for Dubai, given its sustained demand levels and lower prime property per sq ft costs compared to other global markets,” said Swapnil Pillai, Associate Director – Middle East Research at Savills.

Miami and Dubai recorded the highest level of capital value growth in 2022, at 25.4% and 12.4% respectively, followed by Singapore at 6.8%. Whilst lower than the highs of 2021, growth has been fuelled by pent-up demand from both international and domestic buyers, a lack of quality stock and the inflow of high net-worth individuals, companies and family offices.

Oxford Economics has forecast that by 2030 the number of households with an annual income exceeding USD 250,000 will grow by more than 15% in each of these cities. In Dubai, the number of these households is also forecast to double, to just under 50,000 households, in the next seven years.

“Capital values rose by an average of 3.2% across the 30 cities we monitor in 2022, with the second half of the year only contributing 0.7% as the deteriorating economic situation and higher interest rate environment took effect. Recessionary conditions, a higher interest rate environment and inflation will weigh on prime residential performance although the second half of the year holds some potential for global economic growth,” said Paul Tostevin, head of Savills World Research.

Rentals

Rents outperformed capital values in 2022. Across the 30 cities in the Savills Index, average prime rental values increased by 5.9%, driven by a lack of stock and rising demand. Capital values increased by an average of 3.2% over the same period.

Rental growth came as people continued to return to cities after the lifting of pandemic related restrictions, and as rapidly rising interest rates in the latter half of 2022 meant that more people chose to rent, adopting a ‘wait and see’ approach.

Lisbon and Dubai recorded prime rental gains of 25.4% and 22.9%, respectively, last year—both benefitted from an influx of lifestyle purchasers, attracted to these cities' climates, and quality of life on offer, supported by strong business environment. However, as rents continue to rise, a rental cap has been enacted by the government in a bid to cool Lisbon’s rental market. Meanwhile, Singapore led prime rental market growth with rates rising 26.2% as the country opened up and saw strong demand from students, expats and high net-worth individuals relocating to the city.

Yields

Globally, prime yields averaged 3% in 2022, and moved out the fastest in Dubai, Singapore and London. Dubai (+60 basis points (bps), to 5.3%) and Singapore (+40 bps, to 2.9%) have seen substantial inflows of international tenants, leading average yields to rise above pre-pandemic levels. Prime yields in London rose by 25 bps to 3.2%; the city remains a global higher education hotspot, and international student demand further accelerated the lack of prime stock in the city.

Meanwhile yields in Chinese cities have fallen since the onset of the pandemic as rents increased more slowly than capital values. Whilst the prime rental market remained healthy through most of 2022, the last few months of the year saw demand begin to fall in China’s major cities amid wider domestic uncertainty, leading landlords to reduce rents.

To read the research article, click HERE