An abundance of international school places reflects as well as anything the lack of expatriate demand in the residential rental market, with a further exodus anticipated during the first half of 2022, according to Savills in its Market in Minutes - Hong Kong Residential Leasing report for Q4 2021.
- Luxury leasing rents were little changed during the fourth quarter, with rents on Hong Kong Island, Kowloon and the New Territories increasing slightly by 1.0%, 0.8% and 0.2% respectively
- Hong Kong Island apartment rents continued the rebound from the previous quarter, led by Pokfulam and followed by The Peak and Southside
- Moderate rental increments were recorded in Sai Kung, followed by Tsim Sha Tsui/Hung Hom and Sha Tin/Tai Po
- Townhouse availability remains extremely scarce and budgets of HK$250,000 per month plus are now dominated by Mainlanders.
Modest rental growth in Q4
2021 was a year of relative stability in the luxury residential leasing market with little tenant movement in or out of the city. While rents drifted up marginally, they remain substantially down from the peak levels of 2018/19 (Townhouses -11%, Hong Kong Island apartments -13%, Kowloon and New Territories apartments -17%) and the market was presenting a very mixed picture by year-end as expats began to tire of quarantine measures which are among the strictest in the world. International school places are currently abundant across all age ranges and with a further expat exodus expected early next year this is unlikely to change.
Luxury rents were broadly flat during Q4, with apartment rents on Hong Kong Island, Kowloon and the New Territories increasing slightly by 1.0%, 0.8% and 0.2% respectively. Newcomers are typically focused on Mid-Levels, Southside and Clearwater Bay/Sai Kung, the latter for its school offering including the French School in Tseung Kwan O and Clearwater Bay School in Clearwater Bay. Pokfulam meanwhile is regarded as good value for money.
Rebound in rents led by Pokfulam and Sai Kung
Hong Kong Island apartment rents continued the rebound from previous quarter, with Pokfulam (1.6%) registering the largest rise, followed by The Peak (1.3%) and Southside (0.9%).
Meanwhile, Kowloon and New Territories apartment rents stabilized after declining in the previous quarter except Ho Man Tin/Kowloon Tong (-0.6%) and Discovery Bay (-1.7%). Moderate rental increments were recorded in Sai Kung (+1.6%), followed by Tsim Sha Tsui/Hung Hom (+1.2%) and Sha Tin/Tai Po (+1%).
While Discovery Bay on Lantau Island has a limited availability of apartments, small houses can still be rented for around HK$70,000 per month. Cathay pilot housing budgets of HK$70,000 per month are likely to fall towards the end of 2022 and this could in turn soften the local rental market. While some PRC renting has been in evidence in Discovery Bay, the ferry service puts some off and we find that Mainland demand is more often focused on the New Territories and areas such as Kau To Shan, Yuen Long and Sheung Shui which offer better border access.
Solid Mainlander demand for townhouses
Turning to Q4 2021, townhouse availability remains extremely scarce and budgets of HK$250,000 per month plus are now dominated by Mainlanders, some of who's companies will have recently listed in Hong Kong. Expat rental budgets at this level are very rare these days. Southside developments such as Regalia Bay and Redhill Peninsula are fully occupied and there is very little market movement above HK$200,000 per month in the district. In terms of rental movement, townhouse rents rose 2.1% over the quarter, up from an increase of 1.4% in Q3/2021.
Serviced apartment occupancy rate rebounds
Despite of a significant drop of 23% from the peak in Q4/2018 alongside shrinking demand due to the COVID-19 outbreak, serviced apartment rents found a floor from Q2/2021. Market sentiment showed an improvement in Q4/2021 with an overall increase of 1.8%. Rents for hotel-like and apartment-like units rose by 1.2% and 2.9% respectively. With the recovering unemployment rate in the finance, insurance, real estate, professional and business services (FIREBS) sector, the occupancy rate rebounded to 66.5% in Q4/2021 from 60.1% in Q4/2020.
Outlook for 2022
Little looks likely to change in 2022 and travel restrictions are widely expected to remain, even if some loosening is possible. This will curtail rental demand from both Mainlanders and expatriates and suggests that the current stalemate will continue with limited availability and weak demand. It is worth noting that an expat exodus after the end of the financial year in April and as the school year ends (depending on US/UK/Australian norms) would have a dampening effect on the market. We therefore expect luxury apartment rents to fall by 5.5% in 2022.
Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "Hong Kong's uncompromising attitude to COVID has brought local transmission rates to near zero but travel restrictions are forcing some expat families to reconsider their options."
Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "Landlords should remain willing to compromise and tenant renewals are currently being met with renovation offers even if rents remain little changed."