Leasing Demand and Rents of Luxury Homes Rebound After Borders Reopening

• Amid the full reopening of borders and scrapping of all COVID curbs, the residential leasing market picked up in Q1/2023, with a strong demand particularly for quality apartments and townhouses on the Peak and Mid-Levels with budgets from HK$80,000 to HK$120,000
• Rental turnaround for Hong Kong Island and Kowloon in Q1/2023 as luxury rents rose by 0.4% and 0.8% quarter-on-quarter respectively, compared with a drop of 3.1% and marginal growth of 0.1% in Q4/2022. Luxury rents in New Territories continued to drop by 0.9% in the first quarter
• Townhouse rents seen the biggest rebound in the first quarter among all leasing property types, rising by 2.6% over the quarter compared with a drop of 5.8% in Q4/2022, mainly due to limited supply
• In the serviced apartment market, rents for hotel-like and apartment-like units rebounded by 1.0% and 1.8% respectively in Q1, while overall occupancy improved slightly to 63.5%. 

Residential leasing market warmed up with rents rising for most districts

The residential leasing market picked up in the first quarter of 2023 following the full reopening of borders and the end of all COVID curbs. Luxury rents on Hong Kong Island rose by 0.4% quarter-on-quarter following a drop of 3.1% in Q4/2022. Demand was particularly strong for quality apartments and townhouses on the Peak and Mid-Levels with budgets from HK$80,000 to HK$120,000. Luxurious apartments in Mid-Levels Central saw active transactions as vacant units were quickly taken up attributed to nearby displacement demand.

Luxury rents in Kowloon rose by 0.8% in Q1, surpassing the rental growth of Hong Kong Island and the New Territories. Apartments in Tsim Sha Tsui and Hung Hom - in the Kowloon Station submarket - remained popular, with the likes of The Cullinan and The Arch attracting arriving Japanese expats with their proximity to Japanese banks.

Luxury rents in the New Territories continued to decline but at a slower pace, falling by 0.9% compared with -1.1% in Q4/2022. Discovery Bay and Sai Kung continued to face challenges on several fronts as demand from airline staff remained weak in terms of both numbers and budgets.

Landlords more defiant in negotiations

With the sales market picking up over the same period, landlords had the option of putting up their properties for sale rather than for lease, resulting in a scarcer rental supply, and they had generally been less willing to make rental concessions.

Waiting lists for international schools re-emerged

International schools were seeing waiting lists again with places taken up mostly by locals and Mainlanders. Some international primary schools which saw abundant places over the last two years due to local and expat exodus have become attractive again to relocating families and locally based foreign passport holders as cross-border travel resumed, boosting the prospects for the luxury residential leasing market in general.

Serviced apartments saw gains in both rentals and occupancy rate

In the serviced apartment market, rents for hotel-like and apartment-like units rebounded by 1.0% and 1.8% respectively in Q1, compared with a drop of 0.1% and 3.2% respectively in Q4, while the overall occupancy improved slightly to 63.5% from 62% in the last quarter. The key demand, though, came from expats looking for opportunities in one to two months of accommodation without too much longer-term commitments. Nevertheless, with the local economy gradually recovering and more infrastructure projects are underway, we expect more foreign experts to be drafted in a project basis, thereby boosting the demand for serviced apartments.

Mr. Jack Tong, Director, Research & Consultancy of Savills commented: "Landlords show lower flexibility in negotiations for quality housing driven by influx of mainlanders, while international school admissions' waiting lists re-emerge."

Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "More leasing activities were noted in Lohas Park and Tseung Kwan O South in the first quarter, where a seaside community is proving to be popular among expats and young couples with budgets between HK$25,000 to HK$30,000."