Luxury Residential Rents Slip On Weak Volumes

• Luxury rents on Hong Kong Island and New Territories recorded declines of 3.1% and 1.1% respectively, while rents in Kowloon rose slightly by 0.1% in Q4/2022
• Luxury rents by district on Hong Kong Island all recorded declines, with Mid-Levels (-3.4%), Pokfulam (-3.8%), The Peak (-2.4%), Happy Valley/Jardine’s Lookout (-2.5%), Southside (-2.4%) all posting modest falls
• Discovery Bay continues to face challenges on several fronts as demand from airline staff remains weak in terms of both numbers and budgets
• Townhouse rents fell heavily by 5.8% over the quarter, with a 6.2% decline on the Peak and a 5.5% decline recorded in Southside. Serviced apartment rents fell slightly.
• Looking ahead to 2023, we should see some revival in demand in the second half from businesses looking to capitalize on Hong Kong’s turnaround as restrictions are loosened and the border with the Mainland reopens. 

Kowloon rents held fast while Hong Kong Island and the New Territories fell

Luxury rents on Hong Kong Island recorded a drop of 3.1% in Q4/2022. All submarkets recorded declines, led by Pokfulam (-3.8%, due to relatively poorer transport options) and Mid-Levels (-3.4%), whereas The Peak (-2.4%), Happy Valley/Jardine’s Lookout (-2.5%) and Southside (-2.4%) posted modest falls.

The Kowloon market remains quite stable with areas such as Tsim Sha Tsui and Hung Hom popular among arriving Japanese expats. Luxury rents in Kowloon recorded a slight increase of 0.1% quarter-on-quarter as a result, with Tsim Sha Tsui/Hung Hom (+0.1%) and Ho Man Tin/Kowloon Tong (+0.2%) posting small rises.

Rents in the New Territories dropped by 1.1% over Q4, with luxury apartment rents recorded marginal declines over the quarter, in particular Discovery Bay (-2.4%) and Sai Kung (-0.1%), except for Sha Tin/Tai Po (+0.6%). Discovery Bay continues to face challenges on several fronts as demand from airline staff remains weak in terms of both numbers and budgets. The ferry service is also regarded as inconvenient and expensive while new areas including Tung Chung and Tseung Kwan O present viable alternatives to the enclave. The Sai Kung and Clearwater Bay markets are also quiet at the moment with fewer expats in town.

Townhouse rents saw bigger drop

Townhouse rents fell heavily by 5.8% over the quarter, with a 6.2% decline on the Peak and a 5.5% decline recorded in Southside. Landlords have been willing to reduce rents in order to lease their townhouses before the end of year. 

Demand for serviced apartments briefly lifted

In the serviced apartment market, rents for hotel-like and apartment-like units also fell by 0.1% and 3.2% respectively, and overall occupancy is at 62%. The shift to ‘0+3’ in October lifted demand for a while but while onerous restrictions around PCR tests and mask wearing (with the possibility of fines) remain, it is difficult to see any turnaround, especially in December and January which are traditionally the low season for this market.

2023 off to a shaky start but rents may rise by 5% at year-end

Hong Kong Island Luxury apartment rents are now 17% below peak levels in 2019 while townhouses are down by around 13%. While the rates of decline slowed in 2022 (-3.6% and -3.4% respectively), the market is on shaky ground and vacancies have persisted at year-end.

Looking ahead, the fortunes of the luxury residential leasing market are closely tied to core office demand which is currently weak after a prolonged period of disruption from the social unrest of 2019 and two years of COVID restrictions.

2023 should hopefully see some revival in demand from businesses looking to capitalize on Hong Kong’s turnaround as restrictions are loosened and the border with the Mainland reopens. With this in mind, we expect luxury apartment rents to remain subdued through the first half with the possibility of a modest rally in the second half to end the year 0% to 5% up.

Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "Generally weak market conditions prevailed at the close of 2022 and looking into next year we expect to see a subdued first half with some upside risk from recovering business sentiment and a more porous Mainland border."

Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "The government’s latest ‘0 + 0’ policy has had only a very minor impact on volumes, but we see falling sales prices beginning to push people into the rental market."