Rents Nudge Higher as Mainlanders Demand Stands Out Amidst Subdued Activity

• Luxury rents on Hong Kong Island, with positive increments for all submarkets, recorded a marginal growth of 1.2%, while rents in Kowloon and the New Territories rose by 1.9% and 0.5% respectively
• Demand is being driven by Mainlanders whose focus is on traditional luxury enclaves such as Southside, The Peak and Mid-Levels
• PRC students are stimulating demand for shared flats in areas like Hung Hom and Ho Man Tin while Japanese expats continue to favour West Kowloon
• In the serviced apartment market, the worst seems to be over, with rents for hotel-like and apartment-like units rising by 5.1% and 4.1% respectively, and enquiries have risen as quarantine measures have been eased. 

Rental growth across the board amidst relaxation of quarantine measures

The luxury leasing market was broadly uneventful during Q3 with some activity towards the end of September as a relaxation of quarantine rules, from a mandate of "3+4" hotel quarantine measure in August easing to “0+3” in September, led to an uptick in arrivals, while the local epidemic situation has remained broadly contained. Luxury residential rents have continued to rebound slightly in the quarter, with Hong Kong Island recording a marginal growth of 1.2%, and rents in Kowloon and the New Territories rising by 1.9% and 0.5% respectively. 

Mainlanders demand focused on Hong Kong Island

Luxury rents on Hong Kong Island all recorded positive increments in Q3, with Mid-Levels (+0.6%), Pokfulam (+0.6%), Happy Valley/Jardine’s Lookout (+3.2%), Southside (+1.9%) all posting modest growth. Demand is being driven mostly by Mainlanders whose focus is on traditional luxury enclaves such as Southside, The Peak and Mid-Levels. Elsewhere, a lack of available stock is helping to support rents and a tendency to renew has resulted in a general lack of movement. In contrast to the luxury markets, rents in the larger housing estates such as Taikoo Shing and Kornhill are falling as the exodus of local professionals overseas has pushed up vacancy.

Rental growth across Kowloon and New Territories submarkets except Discovery Bay

In Kowloon and the New Territories, luxury apartments generally recorded modest growth over the quarter, with Tsim Sha Tsui/Hung Hom (+1.8%), Ho Man Tin/Kowloon Tong (+2.2%), Sai Kung (+2.2%), Sha Tin/Tai Po (+2.1%), except for Discovery Bay (-2.0%). PRC students are stimulating demand for shared flats in areas like Hung Hom and Ho Man Tin while Japanese expats continue to favour West Kowloon. Heavy rental declines have been recorded in Discovery Bay as airline housing budgets have fallen dramatically. Meanwhile, more activity has been noted in Tseung Kwan O recently, where the French International School is proving a draw for French nationals on top of the usual Mainlanders demand who favours the district for its good value for money, terrific shopping malls and improving transport  connectivity.

Townhouse rents continued to grow

After a growth of 1.5% during Q2, townhouse rents rose by 2.5% over Q3, with a 1.9% growth on the Peak and a 2.7% growth recorded in Southside. Supply remained incredibly tight and market movement has been limited.

Serviced apartments enjoy stable prospects

In the serviced apartment market, the worst seems to be over, with rents for hotel-like and apartment-like units rising by 5.1% and 4.1% respectively, compared with a growth of 0.4% and 4.4% respectively during Q2. Many guests are young Mainland graduates who are in Hong Kong for one to three months training with international law firms and banks. Meanwhile, the unemployment rate in the finance, insurance, real estate, professional and business services (FIREBS) sector locally has fallen to less than 3%, which also helped to fuel demand for serviced units.

Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "During a quiet quarter the luxury rental market saw modest rental gains driven partly by limited availability in some areas. A pick-up in demand for serviced apartments, meanwhile reflected an influx of trainee Mainland professionals at law firms and banks."

Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "For serviced apartments, enquiries have risen in the quarter as quarantine measures have been eased and overall occupancy is now at 63% with rents firming especially for smaller units in Mid-Levels."