Landlords of prestige apartments are braced for a slowdown as the financial sector faces uncertainty Hong Kong's luxury leasing market has been a star performer over the years, driven by economic prosperity and increased interest from individual and corporate tenants. The continued expansion of multinational companies over the past few years has translated into strong tenant demand for high-end residential accommodation. The dramatic price rally encouraged more homeowners to sell their flats for profit, further reducing the already limited stock of quality properties for lease. However, the luxury property sector looks set for a slowdown over the coming 12 months mainly due to the fallout from the global credit crunch and financial turmoil. According to Simon Lo Wing-fai, director of research and advisory at Colliers International, luxury residential rentals increased 11 per cent from January to August this year due to rising inflation and companies continuing to relocate more staff in the region. 'With the fallout of Lehman Brothers and the recent turmoil in the financial markets, landlords are starting to reduce rents as companies engaged in the financial sector turn cost conscious and put a freeze on new hires. Non-finance companies also prefer to adopt a wait-and-see attitude before the end of the year,' he says, adding that companies are putting their expansion plans on hold. With fewer tenants, such as investment banks, in the market willing to pay premium rents, the luxury residential leasing market is beginning to see a downward adjustment. The stock available for lease has also increased because liquidity in the sales sector is drying up. 'Rents are predicted to come down by 10 per cent in the next 12 months. On the supply side, there will be more stock for lease until the sales market volume reactivates,' he says. 'Tenants are more cost conscious and fewer of them can afford to pay premium rents. Corporate tenants, particularly those coming with families, prefer to wait until the end of the school term although demand attributed to non-finance tenants remains steady.' Anne-Marie Sage, regional director of residential at Jones Lang LaSalle, says the market sentiment has changed with the recent global financial meltdown. There will be a slowdown in the number of expatriates coming to work in Hong Kong, especially in the financial sector, and that is going to have an impact on luxury leasing demand. Some landlords, who were previously firmer in lease negotiations, have become more forthcoming and flexible now in renewal of leases with tenants, she says. However, Ms Sage says a correction in the luxury sector is not unjustified considering that landlords have enjoyed two or three fabulous years of strong leasing interest. She says Hong Kong continues to be a popular destination for businesses and an easy place for expatriates and their families to live in because of its well-established infrastructure and supporting amenities. Some expatriates, who work in Macau, will still keep their families in Hong Kong, she says. There are also cases of people moving from Singapore back to Hong Kong. Competition in the serviced apartment sector has intensified with the arrival of more new operators but rents are holding firm. Ms Sage estimates that average rents for serviced apartments have increased by 4.8 per cent in the first three quarters of this year and occupancy rates are high. Rene Holenweger, assistant general manager of Gateway Apartments (pictured below), says occupancy reached 97 per cent during the first quarter of the year and now stands at 93 per cent. 'At Gateway Apartments, our primary business strategy has always been to offer value for money. Our rents are all-inclusive and there are no hidden charges, such as for high-speed internet connection, storage or charges for ice cubes,' he says. 'Competition has intensified throughout the year with new supply coming to market. Coupled with the shake-up in the US finance and insurance sectors, we expect the operating environment to become more challenging in the short term. We expect this to be particularly the case for properties on Hong Kong Island, the traditional stronghold of the investment banking and finance sectors.' However, Mr Holenweger remains optimistic about the long-term business prospects and expects Kowloon and, in particular Tsim Sha Tsui, to continue to gain in popularity with the creation of a new arts hub in West Kowloon. Coco Wong, resident manager of Pacific Place Apartments, says demand for apartments remains strong because of the limited supply of luxury flats, and its occupancy rate is at well above 90 per cent. 'Competition is always intense in the serviced apartments market. As a market leader we embrace challenges and turn them into a positive driving force. Pacific Place Apartments are well maintained with high-quality personalised service provided by our dedicated teams,' she says. Pacific Place Apartments offers generous apartment sizes ranging from 1,200 sqft for a one-bedroom suite to 2,650 sqft for a three-bedroom suite. The project is close to upmarket hotels and transport interchanges. Ms Wong says 90 per cent of its residents are corporate clients and the majority are business professionals from all over the world. There was a gradual increase of families coming to Pacific Place Apartments since the launch of the three-bedroom suites, and a steady demand from Hong Kong residents. 'The sustained global financial turmoil has dampened sentiment in Hong Kong's economy recently. 'However, China continues to present a positive and healthy growth forecast in 2009 which should lead to renewed momentum,' she says. 'A steady arrival of expatriates in Hong Kong is always a long-term stimulus to the residential market. 'Due to limited supply of luxury serviced apartments we expect demand for Pacific Place Apartments will remain strong.' To stay ahead of the market, Ms Wong says it is important to equip the apartments with state-of-the-art communications and electronic appliances. All its serviced apartments are furnished with complimentary broadband internet and tenants can choose from more than 110 television channels. Kitchens are fully equipped with branded appliances.