Rents remain under pressure in ECA’s latest Accommodation Survey

This time last year we observed rising rental costs in many locations around the world due to a significant upturn in international relocations and a recovery in demand for city-living. High global inflation was also starting to affect rental markets, with elevated costs for building materials and rising labour costs hampering the construction of new properties. Our latest accommodation survey has seen that while these factors continue to exert upward pressure on rental costs in many locations, a host of other issues is accelerating price increases in multiple cities.

Central banks around the world have raised interest rates to try to curb spending and rein in high inflation. By doing so they have increased rental costs in a variety of ways. Landlords have raised rents to cover higher mortgage repayment costs, adding to renters’ outgoings. Interest rate rises means that prospective buyers are being offered smaller mortgages, forcing would-be-buyers to rent for longer and delay purchasing properties until more favourable financial conditions occur. This slowdown in sales activity is keeping competition high for rental properties and adding to upward pressure on rental costs.

With international travel returning to pre-pandemic levels, many landlords have reverted to putting their properties onto the short-term rental market, receiving more income through a series of short stays from tourists than they would with a regular long-term rental. This constriction of availability of long-term rental properties is also contributing to rent rises in many cities.

Our March 2023 survey primarily focuses on rental markets in North America and Europe, where we have seen fast-paced rental markets.

North America

Last year we observed annual rental price growth of 10% or more in almost half of all cities in the United States surveyed by ECA. While rents continued their upward trajectory between 2022 and 2023, the pace of increases slowed in many cities, as urban populations began to settle and inflation eased compared to 2022. Only two cities showed annual growth of over 10%: New York City and Indianapolis. New York City’s enduring popularity means that demand for properties in prime districts remains consistent despite recent uncertainty in the finance sector. Meanwhile, strong job prospects and a lack of property supply has led to Indianapolis’ rental price increases. Elsewhere in the country, renters continue to be attracted to the warmer climates in the south-east, particularly workers whose jobs have become fully remote. In Florida, we saw notable rent increases in Tampa (7%) and Miami (6%).

Over the border in Canada, strong increases in rental prices are being seen in a number of locations, as property markets grapple with low inventory and high demand from renters. The most pronounced annual increases were in Calgary and Vancouver (both 14%), as well as Toronto (10%).

Europe

Substantial rent increases were seen in many cities in the United Kingdom between 2022 and 2023, intensified by a slump in activity in the property sales market. High interest rates have meant that would-be buyers are renting for longer, and landlords are raising rents to cover their higher outgoings. The greatest annual rent increases were seen in London (14%), Glasgow (14%) and Manchester (13%).

Intense competition for rented accommodation and a lack of new properties on the market have prompted notable rental price increases in major cities in Spain, Italy and Germany. Some of the highest annual increases occurred in cities attracting so-called digital nomads who can work from anywhere, as well as locations where the short-term lettings market is less regulated. Some of the highest increases were in Valencia (18%), Barcelona (17%) and Milan (8%). In Berlin, property availability has been further tightened due to the city’s growing technology sector and its welcoming of large numbers of Ukrainian nationals, causing an annual increase in rental prices of 13%.

Demand pressures have also been placed on rental markets in multiple locations in eastern Europe following Russia’s invasion of Ukraine. Some of the most dramatic rent increases have been seen in cities in Poland, a country which also welcomed large numbers of Ukrainian refugees. This added demand for rented accommodation has exacerbated the rental cost increases that were already occurring due to high inflation and slower property construction. Our latest survey recorded double-digit percentage rent increases in only a six-month period in in the following cities: Krakow (21%), Gdansk (18%) and Warsaw (14%).

As well as nationals fleeing Ukraine, large numbers of Russian nationals have left their home country, mainly to avoid military call-ups. Many cities in Europe and central Asia have seen fast increases in rental costs with their markets undersupplied in the face of increased demand from Russian expatriates. Some of the more significant increases were seen in Limassol (where rents saw an annual increase of 35%), Tbilisi (23%) and Yerevan (10%)

Other major locations

Our latest survey has also tracked significant rental price increases in several markets outside of North America and Europe. Singapore’s rental market has been under severe strain in the past two years, with delays in construction causing dramatic property shortages where available land is at a premium. Our survey showed annual rental price growth of 28%, but the delivery of new properties to the market should see a softening of the market later this year.

In the Middle East, dramatic rental price increases of 30% were seen in Dubai. As well as the United Arab Emirates welcoming large numbers of Russian citizens over the past year, the city’s strong finance sector and growing appeal as a destination for luxury living has led landlords to raise rents dramatically. The scale of these rent increases has led to a rise in the number of disputes between landlords and renters trying to negotiate renewals of their lease agreements.

Will rent rises continue at their current pace?

High inflation and countries’ prolonged efforts at tackling inflation through interest rate rises persist in being key contributors towards rent increases in many countries. Bringing inflation under control should help alleviate pressures on the property supply of major cities as building material costs cool. A calmer inflationary environment may also prompt a scaling back of interest rates, helping to alleviate mortgage costs for property owners and easing the tendency for landlords to continually raise rents.

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