Arrival numbers are increasing and the demand for short-term accommodation remains strong LEASING ACTIVITY for serviced apartments is gathering momentum as companies raise staff housing allowances and increase their numbers of expatriate staff. Strong demand and limited supply continue to support growth in rent rates in the serviced accommodation sector, which has been faring better than ordinary residential properties since the beginning of the year. Simon Lo, director of research and consultancy at Colliers International, said serviced apartment rents have grown 13 per cent so far this year, as against 9.5 per cent growth for conventional flats. In line with the surge in rents, some companies had revised their housing allowances for staff, raising allowances by 10 per cent to 20 per cent, he said. 'The summer has been extremely busy,' he said. 'This is the time newcomers take short-term accommodation before moving into or finalising permanent accommodation.' Mr Lo said he expected serviced apartments to register a total rental increase of 20 per cent to 25 per cent this year, with conventional residential leasing trailing behind with an 18 per cent increase. Knight Frank residential manager Victor Yuen said tenants were showing interest in signing long-term contracts as companies modified their employment strategies. Against the backdrop of a stabilising economy, firms are bringing in more expatriate employees on a long-term basis and increasing their housing budgets. Corporations prefer their staff to commit to long-term rent contracts rather than to renew accommodation on a monthly basis. The consultant estimated that the number of one-year leases had increased by 15 per cent in the second quarter, while six-month contracts rose 12 per cent, and three-month contracts 10 per cent. Mr Yuen said landlords had raised rents by 5 per cent to 8 per cent in the second quarter. Meanwhile, demand has been steadily increasing this summer. 'There have been a number of exhibitions and events in Hong Kong, and most serviced apartments have achieved 100 per cent occupancy. Some have prospective tenants lined up until September,' he said. 'The inflow of expatriates has been greater than the outflow this summer. But again location, quality and services remain the main factors in the success of a serviced apartment.' According to CB Richard Ellis, serviced apartments at the top end of the market saw rents pick up just 1.4 per cent in the second quarter because of the high rental base. Rental of luxury serviced flats surged 21.3 per cent during the period, thanks mainly to high rents achieved for renovated and upgraded properties such as New World Apartments and The Royal Tower at Hillsborough Court. A 14.6 per cent rental rise was recorded for standard serviced apartments, driven by improved property standards and a demand from junior assignees with moderate budgets. Jane Garnett, director of residential services at CB Richard Ellis, said many companies were revising their housing allowances upwards, but they still lagged behind the market. 'Tenants are prepared to spend more on quality than quantity. Even tenants with limited budgets generally prefer to lease something small but in good condition rather than something large that needs upgrading,' she said. 'Serviced operators have recognised this demand for quality, and are upgrading their developments accordingly.' The leasing market is expected to remain active in the summer as expatriates continue to arrive and ask for serviced apartments until they move to permanent housing. She said the new Four Seasons Place project had been well received, and this had encouraged some operators to upgrade apartments to a higher standard to compete for tenants. 'Demand for premier-grade serviced apartments will remain strong. There is sufficient demand in the market to keep all operators happy,' she said. 'The prospects for serviced apartments will remain positive for the rest of the year and well into 2006. Hong Kong is still the preferred business and residential hub in Asia for many multinationals.' She said the serviced sector was likely to outperform the general luxury residential market in terms of rents and occupancy because of the increasing number of business people coming to Hong Kong on short and medium-term assignments. Mr Yuen expected to see a further increase in demand for serviced apartments as many expatriates sought flexibility and convenience. 'The main reason is that most expatriates, such as those working in financial insurance, trading, accounting and legal firms, have longer working hours than before,' he said.