Rents in the luxury residential market on Hong Kong Island fell by 4.1 per cent in this year's first quarter and are expected to drop by 10 to 15 per cent for the year, international property consultancy Savills said.
The decline continues the slide since 2011 of about 5 per cent per year, but the trend has recently accelerated, Savills said.
Areas on the outskirts of the city, such as Yuen Long and Fanling, however, are benefiting from an influx of expatriates trying to reduce their rental outlay, and tenants who used to live in Mid-Levels are moving further east, to Tai Hang, Tin Hau and Quarry Bay.
Savills attributed the decline in luxury residential rents to the shrinking number of expats in Hong Kong and a reduction in their housing budgets, which is a result of lower levels of relocation support and smaller bonuses.
Americans, in particular, are being lured back to their homeland by better prospects and better value, and a cooler mainland economy may also be prompting some mainlanders to return home, Savills said.
"Major landlords have been quick to grasp the implications of ebbing leasing demand, and asking rents have dropped substantially, while aggressive rental discounts on renewal are being offered to maintain occupancy levels," said Simon Smith, head of research and consultancy services at Savills Hong Kong.
However, rents in Sai Kung bucked the trend and rose 5.3 per cent in the first quarter.
With little new supply and new demand being generated by the Hong Kong Academy and Kellett School, as well as the developing office cluster in Kowloon East, rents are likely to remain high in the area for some time, Savills said.