Arrivals fuel apartment boom

PUBLISHED : Friday, 15 October, 2010, 12:00am
UPDATED : Friday, 15 October, 2010, 12:00am

Leasing interest in serviced apartments is robust thanks to an increasing demand for accommodation with flexible terms, and reduced availability of residential properties for rent.

Studio and one-bedroom serviced apartments are particularly in demand, driven by the expansion of multinationals and the sustained influx of expatriates and business travellers.

According to CB Richard Ellis, the average monthly rent of serviced apartments increased by 3.8 per cent to HK$47.6 per square foot in the third quarter against the second quarter. Rents increased by 10.4 per cent compared with the same period last year.

Boutique serviced apartment rents recorded the strongest growth in the third quarter, rising by 5 per cent from the previous quarter and 13.5 per cent year-on-year to HK$46.4 per square foot. Luxury serviced apartment rents increased by 3.4 per cent from the previous quarter to an average of HK$55.3 per square foot. Standard serviced apartments saw a 2.8 per cent quarter-on-quarter jump in rents to an average of HK$41.2 per square foot.

Mirroring the market conditions in the luxury residential market, availability in the serviced apartment sector was also tight over the third quarter, with many operators at least approaching full occupancy, says Stella Abraham, associate director of the residential division at CB Richard Ellis.

'This is not surprising given the lack of available residences in the luxury residential market, which has resulted in demand spilling over to the serviced apartment sector,' she says.

'Boutique and standard serviced apartments have performed well in terms of rental growth this year, registering 13.5 per cent and 8.5 per cent growth since the beginning of the year.'

Xavier Wong, director and head of research for Greater China at Knight Frank, says demand for serviced apartments has been increasing due to an influx of expatriates and business travellers, and demand from local residents looking to upgrade. A lack of traditional luxury homes for lease has also pushed some tenants to the serviced apartment market.

'Overall occupancy rate for serviced apartments has been consistently improving over the past year. Studio and one-bedroom suites have remained the most sought after properties. However, demand for serviced apartments with a size of more than 2,000 sqft has increased recently due to a lack of bigger-sized traditional luxury homes available for lease,' he says.

'With strong demand and reduced availability, the landlords have gained the upper hand at the negotiating table and become aggressive in setting asking rents.' Colliers International estimates there are about 7,000 serviced apartments on the market. About 18 per cent of them are located in Central, 21 per cent in Wan Chai and Causeway Bay, 14 per cent in North Point, 33 per cent in other districts of Hong Kong Island and 14 per cent in Kowloon.

Simon Lo Wing-fai, director of research and advisory at Colliers International, says there was sustained growth in the serviced apartment sector during the third quarter. 'Newcomers from the banking and finance sectors have remained the largest contributor to total arrivals. The market saw more senior executives hired in the banking and finance industry because of the active IPO [initial public offering] market and promising business growth in the region. However, companies from non-finance sectors, such as the manufacturing business, remained cost cautious,' he says. 'On the back of stronger leasing demand and positive market sentiment, landlords stood firm on rentals and lease negotiations, while corporate landlords were aggressive in raising their asking rents.'

Developers and investors have demonstrated increased interest in the lucrative serviced apartment sector by turning old buildings into serviced flats.

Abraham says an increasing number of small and medium-sized developers and investors have acquired old buildings en-bloc and converted them into serviced apartments. Most of these new developments were not in the luxury sector but small- to medium-sized units close to transport links.

'Branding and image are becoming more important for serviced apartments. For example, Shama, CHI and Kush go for various themes incorporating concepts from Zen Buddhism, chic and minimalist design that help make their tenants feel relaxed and at home. They tend to have smaller, studio-style units that appeal to young professionals,' she says.

Abraham says the outlook for the serviced apartment sector was positive, particularly for conveniently located and well-managed serviced apartments, as more foreign companies expand into the city seeking opportunities on the mainland. The continued growth of mainland-related business will bring in many more expatriates who prefer to be based in Hong Kong while doing business on the mainland.

Wong says the expansion of multinational corporations will also bring more expatriates and business travellers to the city.

'Hong Kong is a preferred place for multinational corporations to set up their headquarters or regional offices due to its strategic location as a gateway to China, potentially the largest consumer market in the world, as well as the city's sophisticated land, sea and air transportation networks, and its sound regulatory, legal, tax and financial frameworks,' Wong says.

'As the mainland gradually removes its restrictions on outbound investment, Hong Kong will increasingly be a platform for Chinese enterprises to enter the global market, which will add to the demand for serviced apartments.'

Meanwhile, Lo expects the growth in demand for serviced apartments to continue and the average rent for a serviced apartment is projected to increase by about 15 per cent over the next 12 months, which is in line with the traditional residential leasing market.