Local demand has become a more important driver in the luxury residential leasing market over Q2/2020 as new PRC and expat demand has fallen heavily due to the cross-border restrictions, which require newcomers to self-quarantine for 14 days.
Another reason is the worsening business environment which has seen downsizing and redundancies. In some good news, because Government departments have returned to work, working visa issuance has returned to normal. We note that a majority of the recent newcomers are from the US and Europe, working in the finance and I.T industries.
Local demand has become a more important driver in the luxury residential leasing market over Q2/2020 as new PRC and expat demand has fallen heavily due to the cross-border restrictions, which require newcomers to self-quarantine for 14 days. Another reason is the worsening business environment which has seen downsizing and redundancies. In some good news, because Government departments have returned to work, working visa issuance has returned to normal. We note that a majority of the recent newcomers are from the US and Europe, working in the finance and I.T industries.
We haven’t seen too many expats leaving town yet. Even though they may have been laid off, many have chosen to remain and renew with landlords on a month-to-month basis due to the quarantine hurdles they face in their home countries. In the second half of 2020, if the cross-border restrictions are loosened, we expect more expats to leave given the state of the global economy and the prospect of rising corporate insolvency. The unemployment rate in Hong Kong rose to a 15-year high of 5.9% in May.
Corporate landlords are eager to keep tenants with a good covenant and are willing to negotiate. They prefer to stand firm on face rents but are prepared to offer rent free periods to lower effective rents and ease the burden on tenants. Corporate landlords typically offer 1.5 to 2 months’ rent free for a 2-year lease in today’s market.
Looking more broadly across the market, we note a rise in the numbers of non-local employees being admitted via various admission schemes on lower budgets. We believe that this may result in more demand for smaller accommodation, such as co-living environments and more traditional serviced apartments in Kowloon and the New Territories, with lower lump sum budgets over the coming years.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “An increasingly precarious employment outlook is undermining rental affordability while travel restrictions continue to limit market movement.”
Ms. Aradhana Khemaney, Head of Residential Services said: “Luxury rents appear to have stabilised for now as the market exists in a suspended state with travel restrictions still in place and many corporates still unsure of future prospects.”