Savills plc, a global real estate services provider, released the findings of the latest Prime Residential World Cities Index, which revealed that average capital values during the first half of 2023 in the 30 cities it tracks grew slightly by an average of 1.1%. In comparison, only 0.8% growth was recorded in the second half of 2022. As a result, yearly growth through June 2023 will only be 1.9%, the slowest annual growth since December 2020. Meanwhile, average prime residential rents grew by 2.6%, outperforming capital values.

Capital values in Dubai

Dubai led the capital value growth performance among the 30 cities tracked by Savills during the period January - June 2023 at 11.2%, following on from the strong performance recorded in H2 2022. Despite the economic uncertainties weighing on sentiment globally, Dubai is still experiencing high levels of prime residential price growth, helped by favourable economic policies and competitive home prices versus other world cities. 

The Asia Pacific (APAC) region witnessed the healthiest levels of prime price growth in 10 out of the 13 cities. European cities followed, with 7 out of 11 exhibiting some growth.

Paul Tostevin, Director, Savills World Research, said, “The slowdown in sales markets recorded in the second half of last year has continued into 2023 in the face of rising interest rates and muted global economic growth. Despite this, prime residential price growth has, on average, remained positive, and we forecast capital value growth of 1.1% for the second half of the year.”

Certain cities are expected to outperform, with Dubai forecast to lead the way with growth of between 6% and 7.9%. Singapore and Bangkok are expected to follow, with between 4% and 5.9% growth forecasted for H2 2023. These cities still offer comparative value by global standards.

Swapnil Pillai, Associate Director, Middle East Research at Savills, added: “Dubai continues to perform exceptionally well in H1 2023, and is poised for growth for the rest of the year - a total of 1,500 units priced above AED 4,000/sq. ft. were transacted across the city, a growth of 67% compared to H1 2022.

“The city's real estate market offers the lucrative and unique opportunity of being an ideal investment destination; a growing population, a healthy economy with new business opportunities, potential for property value gains, and high rental yields are all draws.”

Rental performance

Prime residential rents grew by 2.6% across the 30 cities surveyed by Savills in the World Cities Index in H1 2023, outperforming capital value growth, as high interest rates and economic uncertainties influenced potential buyers to rent before, or instead of, committing to prime property purchases.

Limited availability of prime inventory was also a factor, and this scarcity is expected to continue. Rising construction costs, development challenges, and increasing debt costs contribute to the limited availability of prime inventory and the upward pressure on rental prices.

Dubai came in fourth on the list of rental growth for H1 2023, with gains of 5.4%. Since December 2020, average prime rents in Dubai have witnessed a significant increase of 62%. The city has been successful in attracting UHNWIs from various countries, and this is particularly evident in the growth of branded residences in the city, a segment especially appealing to an international consumer base. Meanwhile, Lisbon, Singapore, and Berlin led prime residential market rental growth.

The average gross prime yield across the 30 markets held steady at approximately 3% for the first half of the year. Dubai, Los Angeles, and New York remain the highest yielding cities at just below 5%.

“Despite the slowdown in sales markets recorded in the second half of last year, we expect rents to continue to outperform capital values for the remainder of 2023 and in the medium-term, as supply continues to remain scarce in the face of growing demand”, Paul Tostevin commented.

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