Urban Locales, Emerging Countries Poised for Rent Increases

10-year global forecast points to strong rental markets in places where young people thrive and educational opportunities abound

by Beckie Strum | Mansion Global

Urbanization will push rents up in major cities around the world, particularly in emerging economies and college towns where young people and innovation thrive, according to a report Wednesday by global brokerage Savills.

The real estate firm looked at global rental markets, identifying cities that have had significant swings over the past decade and those poised to do well over the next 10 years in a report titled “Impacts: the future of global real estate.”

Cities Shanghai and Sydney have seen rents skyrocket over the past decade by 59% and 57%, respectively. Luxury rents in particular are up 19% in Shanghai and 25% in Sydney.

Other cities where rents have climbed considerably—and are now poised to plateau—include Beijing and Melbourne.

Some European cities have also seen rents grow over the last decade and are now nearing a price plateau, according to the brokerage. Those include Berlin, which logged a 53% increase, and Frankfurt, where prices have climbed 42%.

In Dublin, rents have jumped 21% over the past 10 years.

The luxury real estate market can sometimes go in the opposite direction of the mainstream market. For instance, London’s average rents are up 25% over the decade, while luxury rents have recently fallen and are up only 6% over the past 10 years.

Savills identified several factors, including shelter from natural disasters and a strong youth population, that will make cities ripe for strong rental price growth in the coming decade.

Educational centers with young populations—including Auckland, New Zealand; Austin, Texas; and Edinburgh, Scotland—are all “tipped for growth,” according to the report.

Urbanization led by millennials and baby boomers retiring to city condos rather than, say, golf communities will also push rents up in city centers, even in tertiary cities like Pittsburgh, Pennsylvania, and Portland, Oregon.

Some of the biggest rent increases over the next decade are expected in emerging economies. Jakarta has a blossoming middle class where consumer spending is increasing 5.6% annually. Rents in Shenzhen, China, are also poised for takeoff with incomes and spending up.

“Competition is intense for talented workforces in developed countries with ageing populations,” said Jeremy Bates, head of Savills Worldwide Occupier Services in the report, “while emerging economies are nurturing an increasing number of young people.”