According to CB Richard Ellis, average rents for standard serviced apartments rose 4.9 per cent in the first quarter, while those for premier and luxury serviced flats rose 2.8 per cent and 12 per cent respectively. These compared with an average rise of 2.2 per cent in the traditional residential market during the period.

Jane Garnett, director of residential services at CB Richard Ellis, said demand for serviced apartments continued to be strong while supply remained limited. High occupancy rates were achieved across the sector, pushing up both asking and achieved rents.

The main driver for growing demand was the increasing number of expatriates arriving in Hong Kong as multinational companies were expanding their operations and importing more short- to mid-term assignees, she said.

'Some companies are revising their housing allowances to take account of the rising rentals, but such changes are likely to take six months to take effect,' she said. 'In the meantime, many prospective tenants may find their allowances insufficient to meet landlords' asking rentals.'

Victor Yuen, manager of the residential department at Knight Frank, said there had been more smaller projects such as Regent Heights in Causeway Bay and No52 Hollywood Road in Sheung Wan coming on the market but they were already absorbed.

'Most serviced apartment properties have an occupancy rate in excess of 90 per cent and rental has increased 5 per cent during the strong trade exhibition period in recent months,' he said. The serviced apartment sector had performed better than the average 3 per cent rental growth for the general residential market.

'Companies have been forced to increase their housing budget since the beginning of the year. It will be very difficult to find rental lower than $15,000 for a 500 sq ft serviced apartment,' he said. 'In fact, the housing budget has increased to between $17,000 and $21,000 for a medium-sized apartment.'

Mr Yuen expected rental for serviced flats to increase a further 10 per cent by the end of the year, supported by increasing housing budgets, an improved economy and the inflow of expatriates. The profitable business of serviced apartments is attracting companies to join the sector through conversion of buildings or new projects.

Anton Eilers, regional residential director of Colliers International, said multinational companies were expanding their local presence and there were indications that some Singapore-based investment banks were considering moving back to Hong Kong to capture the mainland's economic growth.

Demand for serviced apartments was strong and would continue. Many expatriates were now on a shorter-term assignment involving frequent travelling around the Asian region so they preferred to lease fully furnished serviced apartments at flexible lease terms, he said.

Colliers International forecast luxury residential rents would pick up 12 to 15 per cent in the next 12 months, while serviced apartments would fare better with a rental increase of 15 to 18 per cent.

On the supply side, Four Seasons Place in Central is the major project hitting the market this year. But the trend is definitely towards smaller developments, partly due to the lack of suitable sites for larger-scale projects, according to Ms Garnett.

'We are also seeing a trend among operators to offer a personalised and homely feel to their projects. Therefore, we expect to see significant growth in the 'boutique' or 'niche' market over the next few years,' she said.

A few developers were considering launching new projects or converting buildings into serviced apartments but most of these projects were still at the planning stage. She expected to see growth in the sector from both existing operators and new entrants to the market.

Ms Garnett said she was optimistic about the serviced apartment market both for this year and the foreseeable future in view of the increasing number of expatriates arriving to work in Hong Kong and the region.

'Companies will continue to bring in more short- and mid-term assignees, many working on a regional basis, who require the flexibility of serviced apartments. In particular, as housing allowances may lag rentals, we expect more growth in the junior- and middle-management sectors with more moderate budgets.'

CB Richard Ellis predicted rents for serviced apartments would rise 5 to 10 per cent this year, with selected properties registering stronger growth.

Occupancy levels would remain high, with waiting lists at some of the more popular developments.