appConfigEntityId

bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

hooksArticlePageAdvertisementConfigArticle

liveArticle

appConfig

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

sectionsV2

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

json

Kenneth Ko

The luxury residential leasing market in Hong Kong is still under pressure as a result of the weak economy. Demand has softened and average rents are down since the start of this year. 
However, the pace of rental decline has slowed compared with the sharp correction in the fourth quarter of last year when market sentiment was severely hit by the credit crunch. 
But property consultants remain cautious about leasing prospects because of the weak economy coupled with the tough business environment.
Both factors are discouraging corporate expansion and dampening demand for residential accommodation.
Anne-Marie Sage,  regional director at Jones Lang LaSalle (JLL),  said leasing demand had been adversely affected by corporate retrenchment, particularly in the investment banking and hedge fund sectors. 
According to Ms Sage, European banks appear to be more stable in terms of staff turnover, while there is leasing interest from companies in other sectors such as retail, legal and technology.
She said rental allowances for staff at multinational companies had been reduced by 10 to 20 per cent, but the negative impact was partly offset by the decline in average rentals.
'Tenants have more bargaining power today in lease negotiations. Corporate landlords are also more flexible and a lot of new leases have included provisions whereby tenants are entitled to break leases if they are transferred out of Hong Kong or lose their jobs,' she said.
According to Ms Sage, luxury residential rents have come down just under 10 per cent in the first quarter of this year, compared with a fall of 18 per cent in the fourth quarter of last year. 
In all, rents have fallen by 25 to 30 per cent over the past six months - and the decline is expected to continue in the remainder of the year.
'At the beginning of the year, we made a forecast of a 20 to 25 per cent decline in rents for 2009. We expect rents to fall another 10 to 15 per cent over the next two to three quarters,' she said.
Yu Kam-hung,  senior managing director of valuation and advisory services for Greater China at CB Richard Ellis,  said there had been a rise in leasing vacancies as some expatriates, made redundant in the banking and finance sectors, had returned home and surrendered their flats. The greater supply had resulted in downward pressure on residential rents.
'There are also cases where individuals with reduced salaries, or families with one partner made redundant, have looked at reducing their rental overheads. This means that they have relocated to less expensive flats, taken up leases in smaller flats or relocated to another less expensive district,' he said.
'The top end of the luxury residential leasing market is definitely the best performer in the sense that rents on The Peak have declined the least compared to other districts. Demand is usually supported by the heads of multinational corporations living in Hong Kong, so they tend to be less affected by fluctuations in the economic cycle.'
Other areas, such as Mid-Levels and Jardine's Lookout, had been hit harder as tenants were middle- to senior-level employees who had been affected far more seriously by the economic downturn and cutbacks in corporate overheads, he said.
According to CB Richard Ellis, monthly rents at The Peak stayed at an average of HK$43.81 per sqft at the end of March, while those in Mid-Levels were HK$39.24. Luxury flats in South Island and Jardine's Lookout achieved rentals of HK$38.04 and HK$27.87 per sqft respectively.
Mr Yu said he expected rents to remain soft and possibly fall another 10 per cent by the end of this year, reflecting the economic situation and the unfavourable employment outlook for professionals in Hong Kong, both local and expatriates. Housing budgets would probably be frozen or even reduced this year as companies tried to rein in overheads. 
'While there are signs that perhaps the worst is over and that economic conditions may be poised for a turnaround later in the year, employment growth should remain weak and headcounts should be somewhat static. 
'We expect leasing demand to remain active in terms of relocations, but there will be little new take-up,' he said. However, the serviced apartment sector has recorded a better leasing performance than the conventional residential market.
Simon Lo Wing-fai,  director of research and advisory at Colliers International,  said average rents of serviced apartments had slipped by 6.9 per cent in the first four months, compared with a decrease of 9.2 per cent in the luxury residential sector.
'The serviced apartment sector will be more resilient than the standard units in the luxury sector. As a number of occupiers anticipate further downward rental adjustment, they would prefer to stay in serviced apartment units over the near to medium term, with renewal every one to three months. They would consider moving into standard luxury units on a one- to two-year term once the market starts to stabilise,' he said.
Mr Lo said overall leasing demand had contracted across various business sectors, but the pace of downward adjustment had narrowed from an average of 5 to 6 per cent month-on-month shortly after the onset of the global financial crisis in September last year to the range of 1 to 2 per cent at present.
'We have seen a significant leasing demand contraction in 2009. We are going to see a further rental decline in the leasing market in the order of 12 per cent over the next 12 months until there are concrete signs of a recovery on the economic front,' he said.
In a separate development, Mr Yu said there had been an increase in residential sales and investment activity over the past few months, reflecting the fact that people were keener to enter the sales market as residential prices had fallen by about 20 to 30 per cent from a year ago.
Mr Lo added that there were tenants taking advantage of the market conditions to buy their own flats. In the luxury sector, tenants-turned-buyers were principally expatriates who targeted units with a price tag of HK$20 million.



Rental slide gives tenants the whip hand