Uncertainty clouds the residential leasing market as restrictions tighten over the first quarter and expat demand dwindles, according to Savills in its Market in Minutes - Hong Kong Residential Leasing report for Q1 2022.
- The luxury residential leasing market has been very quiet over the first quarter, with rents on Hong Kong Island recording a fall of 2.6%, while luxury rents in Kowloon and the New Territories declined by 3.7% and 4.0% respectively
- The rental falls in Hong Kong Island apartments have been minor so far, with Mid-Levels (-2.9%), Pokfulam (-2.6%), The Peak (-1.4%), Happy Valley/ Jardine’s Lookout (-2.3%), Southside (-2.7%) slipping modestly as landlords have been reluctant to discount rents too soon
- Rents for Kowloon and New Territories apartments recorded more significant declines over the quarter, with Ho Man Tin/Kowloon Tong (-5.3%), Discovery Bay (-4.2%), Sha Tin/Tai Po (-4.2%), Sai Kung (-3.7%), Tsim Sha Tsui/Hung Hom (-3.4%) all recording sharp falls
- A growing number of landlords have decided to put their properties up for sale even with existing tenancies, given the underlying market uncertainties
- Major landlords of townhouses are still holding firm as availability remains extremely tight typically for budgets above $200,000 per month where minimal rental movements have been recorded.
Peak exodus of expats in March/April
The luxury residential leasing market has been very quiet over the first quarter as expats faced with yet more disruption to their personal and professional lives after a fifth wave of Covid hit the city and government responded with a range of exceptionally strict measures. We believe that March/April will probably see 'peak exodus', with expats moved either back to their own countries or to Singapore in a collective loss of patience at anti-pandemic measures.
Rents on Hong Kong Island hold better
As a result rents on Hong Kong Island recorded a fall of 2.6%, while luxury rents in Kowloon and the New Territories declined by 3.7% and 4.0% respectively. The rental falls in Hong Kong Island apartments were relatively minor, with Mid-Levels (-2.9%), Pokfulam (-2.6%), The Peak (-1.4%), Happy Valley/ Jardine’s Lookout (-2.3%), Southside (-2.7%) all recording modest declines as landlords took stock of the situation.
While the availability of apartments especially in Mid-Levels and Southern District is still relatively limited, rental discounts of 5% to 10% are possible. We note also that a growing number of landlords have decided to put their properties up for sale with existing tenancies, given the underlying uncertainties and factors including possible interest rate hikes and population outflows.
Kowloon and the New Territories submarkets suffer more
With leasing transactions volumes down by 20%, rents for Kowloon and New Territories apartments recorded more significant declines over the quarter, with Ho Man Tin/Kowloon Tong (-5.3%), Discovery Bay (-4.2%), Sha Tin/ Tai Po (-4.2%), Sai Kung (-3.7%), Tsim Sha Tsui/Hung Hom (-3.4%) all recording sharp falls. We note that apartments at Kowloon Station remain popular, however, given its superior location. We are also seeing more Japanese in the leasing market, particularly in the Tsim Sha Tsui area with rental budgets of up to HK$100,000 per month, as Japanese banks and trading companies begin to hire.
Townhouse rents largely hold firm
Townhouse rents fell by 1.5% over the quarter, with a 2% drop on the Peak and a 1.2% fall in Southside. Major landlords of townhouses are still holding firm as availability remains extremely tight typically for budgets above $200,000 per month where minimal rental movements have been recorded. Lease negotiations are slightly more flexible for budgets between HK$130,000 and HK$170,000 per month.
Serviced apartments sector suffers from the pandemic
Despite only minor movements in the unemployment rate in the finance, insurance, real estate, professional and business services (FIREBS) sector, the serviced apartment market suffered a decline in Q1/2022 as a result of the outflow of expats with an overall decrease of 3.8% in rents. Rents for hotel-like and apartment-like units fell by 3.6% and 4.9% respectively. The occupancy rate dropped from 66.5% in Q4/2021 to 58.6% this quarter.
Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "The expat exodus gathered pace in March and rents softened in Q1 as a result after landlords held their ground in Q4. We are likely to see further declines in the second quarter."
Ms. Aradhana Khemaney, Senior Director, Head of Residential Services of Savills said: "If the rental falls in Q1 seem milder than they should be, many landlords are hoping that the turbulence will pass and are holding off on lowering offers while very low volumes have also made price discovery difficult. A clearer picture is likely to emerge in the second quarter."