Not long ago, property rent rises in many cities caused no end of problems for the international HR manager trying to set suitable housing allowances. During 2007 and 2008, high demand for expatriate style properties in locations including Singapore, Hong Kong, India, UAE and Russia prompted rents to soar. In 2009, however, we witnessed the reverse scenario, as rental prices fell in many cities. Broadly speaking, it is in the markets that saw large increases in 2007/2008 that rents have fallen in 2009. Average rents in St Petersburg and Mumbai fell 37% and 28% respectively, while in Hong Kong and Dubai they fell 21%.
Such considerable falls will pose a number of challenges for HR in 2010. Not only will they have to look at negotiating decreases in rent, they will also have to deal with the issue of assignees at the same job level having different housing allowances due to the time of year they went on assignment. So, why are rents falling? The lack of available credit affects the market in many ways. With mortgages harder to arrange, many people will postpone buying property, choosing, instead, to rent. Conversely, those hoping to sell property are struggling to find buyers and may choose to let out their properties until the market is in better shape. With the number of properties to let being greater than two years ago, supply pressures on these have eased, contributing to lower rents.
A further effect of the recession is that job losses, job insecurity and wage cuts may encourage tenants to downsize, or leave cities and move to the cheaper suburbs. This emphasis on value, combined with an increased number of rental properties on the market, has caused rents to drop in many cities. Despite rents falling by around 20% in Hong Kong, it is still the most expensive city we survey for a three-bedroom apartment. Tokyo, with its comparatively small fall in rental prices (10%), climbed into the position of second most expensive city.
During 2007 and 2008, high demand for expatriate style properties in locations including Singapore, Hong Kong, India, UAE and Russia prompted rents to soar. In 2009, however, we witnessed the reverse scenario, as rental prices fell in many cities
In Dubai, where the economy depends heavily on its property market, projects faltered and many expatriates left as soon as funding disappeared when the financial crisis hit. As a result rental prices there have dropped significantly. Workers in Abu Dhabi are now even considering commuting in from cheaper Dubai – a complete reversal of the former situation, when rocketing Dubai rental prices prompted many people to move to Sharjah and Abu Dhabi to find reasonably priced accommodation to commute in from.
In some places, such as the UK and the US, a lot of the cities’ markets have seen an expansion in the price range within which suitable accommodation is available. While average prices may have fallen, this is actually due to a widening of the range of available properties. This is a reflection of the stagnant sales markets in many cities, and the fact that high-end properties that would not normally reach the rental market are now being let.
There are many rental markets, however, that have remained static, unaffected by the events of the past year. Some have even continued to experience large increases such as Caracas and Accra, where high general inflation has contributed to pushing rents up further. Many Australian cities still have low vacancy rates and rents in Melbourne and Sydney have seen increases of 5-10% over the past year. In California, the diversity of industries has helped to buffer rental markets from the effects of the US recession.
Lagos has seen the largest increases in rents for expatriate-style properties. This is a result of the supply being tight due to security concerns restricting where expatriates can live. Companies have not lost interest in Nigeria despite the recession and projects such as Eko Atlantic and the Lekki Free Trade Zone are helping to shape Lagos as the official financial centre of West Africa.
Outlook for 2010
Towards the end of 2009 many of the markets that had experienced large falls began to stabilise, and without another large economic shock, many will probably remain static. It is likely that, after a changeable few years, most rental markets will remain stable in 2010, with some small increases where economic recovery is strong.