The luxury apartment rents ended their eight consecutive quarters of decline in the second quarter of 2021, with rents on Hong Kong Island, Kowloon and the New Territories rising marginally, according to Savills in its Market in Minutes - Hong Kong Residential Leasing report for Q2 2021.
- Luxury apartment rents ended their eight consecutive quarters of decline in the second quarter of 2021, with rents on Hong Kong Island, Kowloon and the New Territories rising marginally by 0.5%, 0.3% and 0.8%.
- All districts on Hong Kong Island recorded mild rental increments in Q2/2021 ranging from 0.5% to 0.7%, while all submarkets in Kowloon and the New Territories recorded rental increases except Tai Po/Shatin, which was affected by the completion of new developments in Kau To Shan.
- In Q2/2021, the highest monthly residential rent record was broken by 73 Mount Kellett Road (HK$1.6 million a month) and super luxury units are still in demand given the availability of high-quality houses remains tight.
- Few Mainlanders are in the leasing markets, but PRC sales activity is picking up.
- An active IPO pipeline and demand for wealth management services is supporting demand from finance and professional services tenants while unaffordable housing is leaving more locals in the leasing market.
Hong Kong – 30Jun 2021 The luxury leasing market remained in limbo during the second quarter with limited quality stock available, but luxury apartment rents ended their eight consecutive quarters of decline in the second quarter of 2021, with rents on Hong Kong Island, Kowloon and the New Territories rising marginally by 0.5%, 0.3% and 0.8%, according to Savills in its Market in Minutes - Hong Kong Residential Leasing report for Q2 2021.
Despite the marginal rental increases over the quarter, uncertainty remains over the scale of departures after the end of the school year this summer. While the trickle of new arrivals and the low departure volume may reverse over the next few months, as seven-day quarantine lures staff back to the city, the end of the school year in late June/early July may result in a summer exodus.
Hong Kong Island market benefits from IPO galore
All districts on Hong Kong Island recorded mild rental increments in Q2/2021, with Mid-Levels (0.7%) registering the largest rise, followed by Pokfulam (0.5%) and The Peak (0.5%). Hong Kong Island tenants traditionally come from finance related industries, which are benefitting from the flourishing IPO market, which recorded fund raising of HK$184 billion over the first five months of 2021, representing a dramatic increase of 620% over the same period in 2020. Wealth management services are also in demand with the advent of the Wealth Management Connect scheme in February.
All submarkets in Kowloon and the New Territories recorded rental increases, with Discovery Bay seeing the largest rental increment (+2.4%) among the submarkets, followed by Sai Kung (+1.2%) and Ho Man Tin/Kowloon Tong (+0.4%). The exception is Tai Po/Shatin, where elevated supply levels have forced landlords to be more pragmatic, as the rents are undermined by the completion of new developments in Kau To Shan. A large apartment in Tai Po/Shatin of 1,500-1,600 sq ft with a car park space can be let for less than HK$50,000 per month and townhouses can be had for HK$60,000 to HK$100,000 per month with a roof, small garden, car park and (crucially) private access. The accessibility of the district will be further improved after the opening of the cross-harbour section of the Shatin-Central Rail Link, which should open in either the second or third quarter of 2022.
Super luxury units still in demand
Townhouse rents registered a rental increase of 0.9% over the quarter, up from an increase of 0.2% in Q1/2021. Despite the rebound over the last two quarters, townhouse rents are still 12.8% below peak Q1/2019 levels. The typical budget for a house on The Peak is from HK$120,000 to HK$400,000 per month. Some super luxury houses may ask for HK$600,000 or above.
In Q2/2021, the highest monthly residential rent record was broken by 73 Mount Kellett Road (7,022 sq ft saleable with a 7,000 sq ft garden and an internal lift), which was leased for HK$1.6 million (HK$228 per sq ft saleable) a month. The previous record was set by House 1 at 11 Plantation Road, a 10,804 sq ft saleable unit leased for HK$1.35 million a month in March 2021. The record deal indicates super luxury units are still in demand given the availability of high-quality houses remains tight.
Locals remained major demand drivers in serviced apartment market
Serviced apartment rents recorded a mild increase of 1.6% in Q2/2021 after eight consecutive quarters of rental declines. Overall occupancy levels rebounded to over 60% since operators have been active in offering discounts to fill vacancy. Locals remained the major demand drivers given the handful of new arrivals. As serviced apartment rents have now fallen substantially, tenants are being attracted by the lower costs and three- to six-month leases for greater flexibility. We estimate that smaller units renting for HK$20,000 per month are 70% to 80% occupied currently. We also note demand from interns at international banks.
Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "The summer months will prove interesting for the luxury leasing market as relaxed travel and quarantine restrictions may lure staff back to the city while the end of the school year could see a rise in departures."
Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "We are seeing few Mainlanders in the leasing markets but PRC sales activity in areas such as Mid-levels, Kennedy Town, Sheung Wan and Kai Tak in the HK$8 to HK$20 million budget range has been more marked. These buyers can be characterised as yuppie couples starting out in Hong Kong seeking 500 to 700 sq ft apartments. Locals and expatriates are still the major demand drivers in the leasing market."