Tokyo leads the pack in prime residential performance

Average annual house price growth across our 46-city Prime Global Cities Index slowed to 2.5% in the third quarter of 2025, down from 3.0% in Q2.

The deceleration reflects growing uncertainty over the timing and scale of interest rate cuts in key global economies, pulling the growth rate further below the long-term average of 5.2%.

As recently as September 2024, 43% of a sample of 37 global central banks reduced rates. By April this year, that proportion had fallen to just 14%. Although the ratio has risen again in recent months, it will take time to feed through. Still, the trajectory for global rates is downward, and for that reason we expect house price growth to strengthen in 2026, although it is likely to be until well into Q1 that the trend becomes firmly established.

Price corrections

Tokyo leads the pack with a 55.9% annual increase in the twelve months to Q3, followed by Seoul at 25.2% and Bengaluru at 9.2%. Asia-Pacific cities hold six of the ten top spots, though markets across the region are experiencing markedly different dynamics.

Increasingly expensive new-build homes in Tokyo are pushing buyers to the resale market, driving prices higher. Limited supply, a weak yen – which has spurred rising foreign investment – and a more supportive political backdrop have all pushed values to record highs. 

Hong Kong is showing the first signs of recovery, supported by interest rate cuts that have helped to stabilise financing conditions. Investors, both private and institutional, are returning to the luxury sector, where scarcity and notable price corrections from peak levels are creating selective opportunities. By contrast, luxury markets on the Chinese mainland remain subdued. The government has deliberately shifted emphasis away from real estate toward high-tech industry and domestic consumption as engines of economic growth. With policy support muted, demand in the upper tiers is likely to remain soft over the next nine to 12 months.

In Australia, the picture varies by city. The Gold Coast and Perth are benefiting from strong migration inflows, relative affordability and tight supply, which continue to fuel outperformance. Sydney remains resilient thanks to its depth of demand and sustained global appeal, although affordability constraints are limiting further acceleration.

Melbourne is comparatively weaker, held back by a slower economic backdrop and tax settings that have dampened sentiment.

The unwinding

We have also released our Prime Global Rental Index this morning. The unwinding of the pandemic rental boom saw annual global prime rental growth fall from 10.7% in Q1 2022 to a low of 2.3% at the end of 2024, as affordability constraints limited the pace of further increases.

Since the beginning of 2025, momentum has shifted upward. Rental growth averaged 3.4% across our 16-city index in Q3 2025, up from a recent low of 2.3% in Q4 last year.

Tokyo (+9.6%), New York (+7.8%), and Zurich (+6.2%) led the rebound, with annual rental growth far outpacing CPI inflation.

With the exception of Tokyo – see above – most markets in our basket have experienced a recent slowdown in price growth as the pace of rate cuts eases. As a result, pressure on accommodation in key global cities is increasingly being felt through stronger rental growth.

A structural undersupply

Manhattan’s rental market remains defined by very low vacancy and near record pricing, with inventory falling for the eighth consecutive month in October. Median rents are now in the mid-US$4,000s, up roughly 8% year-on-year. In Hong Kong, rents have risen 6% year-on-year, reaching record highs due to strong demand from new arrivals and relocations. Elsewhere in Asia-Pacific, Sydney continues to record robust rental growth, reflecting strong population gains and a steady influx of new tenants. Singapore has also seen healthy increases, with rents up 2.7%, although activity is beginning to ease slightly as leasing volumes decline.

Across Europe, rental markets remain resilient. In Zurich, conditions are still extremely tight, with new lease rents continuing to edge higher amid very limited supply. This structural undersupply, set against strong demand, is maintaining upward pressure on rents despite a softer macroeconomic backdrop. Frankfurt has seen rents rise by nearly 5% over the year, with shortages in supply keeping pricing elevated and driving greater investor interest.

London rents are also increasing, supported by strong tenant demand and constrained stock. Prime Central London average gross yields have reached 4.5%, the highest since June 2006. However, landlord supply is under pressure as regulation intensifies, with the latest tax changes announced in the UK Budget on 26 November likely to reinforce this trend. PCL rents rose 1.8% year-on-year.

Budget noise

Annual UK house price growth softened to 1.8% in November, down from 2.4% in October, according to Nationwide figures released yesterday. The fact that house prices rose 0.3% during the month is another display of resilience given the noise surrounding the Budget.

Meanwhile lenders approved 65,000 mortgages to homebuyers during October, down just 600 from the previous month, the Bank of England reported on Monday. That dataset has run in-line with 2019 levels since the summer.

In other news...

Swiss voters reject 50% inheritance tax for super-rich (FT), Rachel Reeves’s tax rises will ‘act as headwind to the economy': OECD (Times), and finally, City of London risks running out of top office space (FT).