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Expatriate Accommodation Survey highlights 2016/17

While rents remained stable in many cities around the world in the past year, job creation, increased levels of relocation and restrictions in the availability of property led to marked increases in average rents in many other locations. Elsewhere subdued performance in the oil and gas industry, uncertainty over Brexit and a glut of available properties caused rent reductions. We look at some of the factors behind the biggest movers.

Growth in jobs leading to increased relocation

A number of locations posted notable increases in rents over the past year, with ECA’s survey finding the highest rate of annual growth to be in Hyderabad, India. Elevated levels of migration into the city from both inside and outside India have been recorded. This can be attributed to continued improvements to the city’s infrastructure, coupled with its growing prominence as an IT hub. In response to growing demand, the delivery of a slate of new high-quality residential projects to market has raised the average rent profile in Hyderabad.

The second highest annual rent increase recorded was in Vancouver. Strong job growth in the metropolitan area has seen an influx of workers, increasing competition for rented accommodation in an already tight market. The costs of home ownership in Vancouver are staggeringly high, with the highest mortgage-to-income ratio of all Canadian cities. As a result, many prospective property buyers are forced to rent, adding further pressure to average rent levels. While Vancouver landlords are restricted from raising asking rents significantly mid-tenancy, they are permitted to charge prevailing market rates when new tenants sign.

Improving business prospects have also led to rental increases in South Africa. Cape Town is becoming an increasingly popular business destination, with the supply of properties limited by a number of international investors taking advantage of the relatively weak South African rand.

In the United States, young professionals are moving to Chicago in ever greater numbers, attracted by growing business interests in the city centre and suburbs. This demographic overwhelmingly favours renting as opposed to home ownership, keeping rents on an upward trajectory.

After some significant corrections in recent years, average rents in Barcelona grew by more than 8% annually in ECA’s most recent survey, fuelled by decreasing levels of unemployment and an easing of regulations restricting rent increases by landlords. Growing levels of relocation and property supply shortages also prompted notable rent rises in Iran, Cyprus and Ireland.

Ongoing oil slump drags rents down...

Despite most locations showing stable accommodation markets, the past year has seen some cities experiencing dramatic reductions in average rent levels. Oil prices continue to be subdued, in parallel with a prolonged slump in other commodities markets, and restricting growth. This is most keenly felt in Venezuela, where rent levels for expatriate properties have plummeted. The faltering national economy, civil unrest and hyperinflation have seen expatriate demand wane significantly. Landlords in Caracas have been forced to slash asking rents to secure tenants.

Low oil and gas prices have contributed to large-scale rent reductions in major Russian cities in the last few years, with average rents in Moscow nosediving, and those in St Petersburg declining to a lesser extent. These rent falls continued over the past year, albeit at a slower pace than in 2015 and early 2016, with the markets appearing to have started to trough. With Russia beginning to come out of economic recession and oil prices a little higher than they were, we cautiously anticipate a period of stability in the property markets of these cities in future. Other locations whose economies are closely tied to the fortunes of oil prices have seen ongoing rent reductions, with companies forced to continue to scale back spending and the numbers of international assignees sent there. These are the primary factors that have led to the rent decreases observed in Aberdeen, Luanda and Astana. Rent reductions in Astana have also been compounded by the economic performance of Russia, Kazakhstan’s main trading partner.

...as do property gluts and regulations

Elsewhere, we have seen ongoing rent corrections in two major markets in Malaysia: Kuala Lumpur and Johor Bahru. While the local economies have had subdued performances recently, the dynamics of their property markets have also contributed to a lowering of rents. Property speculation has led to a significant oversupply of properties on the market, with landlords having to lower asking rents to mitigate against this. The central bank introduced cooling measures to try and curb this oversupply and introduce a level of stability to the markets.

Other markets in Asia have shown stagnating or falling rent levels over the past year against a backdrop of prolonged low oil and gas prices and lower levels of international relocation. A slowdown in relocation and redundancies in the financial sector led to some rent corrections in 2016 on Hong Kong Island, while demand remained robust for properties on the mainland. In Indonesia, the ongoing slump in commodities prices has led to a reduction in foreign nationals working in the capital city of Jakarta. Tighter work permit regulations, particularly in the middle management positions that comprise much of the demand for high-end accommodation, compounded this lowering of demand and led to rent falls. Stricter controls on skilled immigration into Singapore also contributed towards some of the rent corrections recorded here in ECA’s survey.

In Cambodia, a period of high levels of construction saw the Phnom Penh property market significantly oversupplied with expatriate-level properties. With renters having more options landlords were forced to accept rent reductions to secure tenants, and property developers have since halted construction as the market adjusts. A slowdown in expatriation in Yangon has also led to an oversupply of properties, forcing landlords to reduce asking rents. Almaty, Bengaluru and Dalian have also recorded notable rent reductions this year.

Mixed fortunes in China and the UK

The health of property markets is often tied to the economic fortunes of the country in which they are located. Robust economic growth and healthy balance sheets mean the purchasing power of renters is relatively strong, and residential rental markets can therefore withstand stable increases in average rent levels. However, we sometimes see countries exhibit differing rental trends between their major cities. The industry profile of cities can vary considerably within the same country, and variations in the health of those industries lead to differences in demand. The dynamics of the local property markets can also lead to differences in rent movements.

Rents in the Chinese capital Beijing increased significantly in ECA’s recent surveys owing to a reduction in the availability of high-end apartments, leading to pronounced rental increases. While rents also increased in Shanghai, they increased at a much slower rate with demand from foreign nationals lower than in recent years. Elsewhere, rent reductions were recorded in Dalian and Suzhou amid lower levels of foreign investment and hence renter demand. Some of the rent increases seen in major cities in China have been prompted by the introduction of VAT on landlords’ income. The rate of VAT varies according to the size of the landlord’s income, and so differing distributions of large corporate landlords between cities has led to variations in the movement of asking rents as they adjust to this new cost.

Differing rental trends have also been seen across the United Kingdom. ECA’s survey noted some rent reductions in prime residential rental properties in central London, reflecting uncertainty from large employers in the finance sector as Brexit negotiations begin. Rent decreases were also seen in Aberdeen but at a much faster rate and for very different reasons, with the stagnating oil and gas industry leading to rent falls. Elsewhere in the country, low property vacancy rates have prevailed, with restricted supply levels leading to rent increases in cities such as Manchester and Birmingham.

ECA’s Accommodation Surveys
ECA conducts two accommodation surveys per year:
 
March survey; published in June
September survey; published in December
 
Locations surveyed in March are typically located in North America, Western Europe and Australasia. The focus in September is on Asia, Africa, Latin America and Central & Eastern Europe. Locations with volatile rental markets are surveyed in both March and September.

  FIND OUT MORE

ECA’s Accommodation Reports give you all the detail necessary to provide the right housing options for your expatriates. They are available to buy on demand or as part of a data subscription for over 250 locations.

ECA's comprehensive accommodation data is also available in our Accommodation Tool. The tool enables you to set and manage a consistent housing policy across all your assignment locations and quickly look up data in tables and maps to respond to challenges and queries.

Our assignment management system, ECAEnterprise, can be used to calculate detailed cost projections that include ECA’s accommodation data in the calculations. We can also run individual cost projections on your behalf.

  Please contact us to speak to a member of our team directly.

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