The harbourside city has outranked the likes of Auckland, Geneva and Monaco in a top 10 ranking of global cities that have notched the strongest prime real estate rental price growth on an annual basis.
Knight Frank’s Prime Global Rental Index revealed that Sydney’s prestige market secured the 6th spot after recording a 6.7 per cent increase in rental prices in 2022.
The NSW capital’s prime market was outranked by the strong annual rental price growth observed in the luxury residential markets across Singapore (28.2 per cent), New York (26.4 per cent), London (17.8 per cent) and Toronto (17 per cent) and Tokyo (8.4 per cent).
Other upper-end city markets that rounded out the top 10 list and were outpaced by Sydney were Auckland and Geneva (3.8 per cent), Monaco (2.7 per cent), Hong Kong, which saw a fall in luxury residential rents of 6.4 per cent during the period.
Over the final quarter of 2022, Sydney had the fourth highest growth in prime residential rents with a 3.7 per cent rise, coming in behind Singapore (7.3 per cent), Auckland (5.4 per cent) and Tokyo (3.9 per cent).
Knight Frank Australia’s head of residential research, Michelle Ciesielski, noted that despite the overall rate of annual growth starting to lag, prime rents had remained strong across many global cities and were still averaging double-digit annual growth.
“Sydney saw strong growth over the last quarter of 2022, in line with the rental growth occuring in the wider luxury residential market, and with a shortage of prime homes to rent in the city, prime rental rates are expected to continue strengthening,” she said.
With the latest data from the Real Estate Institute of NSW (REINSW) showing that the total residential rental vacancies in Sydney have now fallen to a low of 1.4 per cent in February, the expert predicts the upward trend in rents to continue across all tiers of the city’s market.
“The low vacancy of rental stock can be seen across both the general market and the luxury market and will lead to further rental growth across the two, with demand simply continuing to outweigh supply in this landlord’s market, at least in the short to medium term,” she stated.
Another factor contributing to the continued growth in rents is an observed surge in demand, according to the report.
Knight Frank’s head of residential, Erin van Tuil, attributed the increased demand to a variety of factors, including corporate tenants, individuals seeking temporary accommodation while renovating their primary residence, and skilled professionals such as expats returning or relocating from other states or countries.
“Due to the shortage of labour in Australia, many skilled professionals are taking up promotions to senior management roles from interstate, and international workers are being encouraged to migrate here,” she said.
Ms van Tuil cited instances of companies offering a six-month rental sign-on bonus to attract new workers until they find a longer-term property to rent or buy, given the tight availability of stock in the current market.
“Even with this incentive, there are very limited properties to view, so many new workers to the city are taking up weekly rates with city hotels and extensively using holiday home platforms like Stayz and Airbnb, whilst quickly getting acquainted with different pockets of the city as they uproot every few weeks,” she revealed.
The expert also cited other instances where people reportedly are opting for co-primary living arrangements, where they spend a significant portion of the month in their country or coastal home and have also purchased a city apartment for their visits.
However, in some cases, she noted that this occasional convenience has resulted in a decrease of available rental homes in the market.
Another contributing factor to the demand for rental properties are individuals who are stuck in the rental market due to delays in moving into their primary residences, Ms van Tuil said.
“There are also those still waiting on their house renovations to be completed and have extended their rental requirements after being delayed by severe weather events, delivery of materials and securing tradespeople.”
Furthermore, she explained that several long-standing corporate rental agreements were removed from the market during the pandemic to reduce costs, as teams from other states and countries were unable to travel to their Sydney offices.
And when they were added back into the rental pool, she highlighted that there was a short lull in prime rental growth throughout 2021.
“However, since borders have reopened, hotels have needed to step in to fill this returning demand as there is simply not enough rental accommodation for new workers moving to the city. As a result, we’ve seen Sydney’s prime residential rents grow 15.8 per cent above their pre-pandemic level,” she concluded.