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Yet another segment of the Toronto real estate market is showing attention-grabbing strength on the global stage.

Luxury rents in 2016’s fourth quarter in Toronto surged 8 per cent over the same period last year, according to Knight Frank’s Prime Rental Index.

That’s the greatest increase observed in any of the 17 cities included in the index, which tracks leases in the top 5 per cent of rentals markets.

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“This rise comes despite a fall in the volume of tenancies agreed over the course of the year,” notes Taimur Khan, a senior research analyst at Knight Frank.

The drop in signed leases is a result of limited supply, he adds. Surging luxury home prices have resulted in fewer condo units available for lease, Khan explains.

“Buyers who may have been considering single-family homes are now turning their attention to the less-expensive condominium market which exacerbated the lack of supply further,” he states.

On Knight Frank’s latest Prime International Property Index, which ranks annual changes in luxury-home values, Toronto took the seventh place out of 100 for price growth of 15.1 per cent in 2016.

Toronto’s upper-tier rent leaps reflect a broader North American trend. It’s a development that may only intensify as a result of the Trump government’s policies, such as tax cuts and interest-rate hikes.

Resulting inflation might not be limited to the US. It could spillover to Canada, leading to higher interest rates — and more-expensive mortgage payments — on both sides of the border.

“Higher interest rates would negatively impact on market affordability, a process which could lead to an increase in the demand for rental accommodation, as prospective buyers opted to rent for a period,” writes Khan.

Worldwide in the fourth quarter of 2016, luxury rents increased on a year-over-year basis in eight other markets in the fourth quarter of 2016, according to Knight Frank.

Cape Town, South Africa, ranked second behind Toronto for rent appreciation of 6.3 per cent, followed by Guangzhou, China, at 3.9 per cent and Zurich, Switzerland, at 3.3 per cent.

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The average year-over-year rent change across all 17 markets featured in the most recent index was a decrease of 0.4 per cent.

Nairobi, Kenya’s capital city, led declines with rents down 6 per cent from a year ago in the fourth quarter of last year. But the outlook is brighter, Knight Frank suggests.

“However, in the last of quarter of 2016, prime rents were unchanged, suggesting declines may have started to bottom out,” says Khan. “This trend is further supported by a steady increase in oil prices over the past few months.”

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