According to JLL's most recent Hong Kong Residential Sales Market Monitor Report, luxury residential rents in Hong Kong recorded an increase of 1.4% in the second quarter of 2021, the first quarter-on-quarter rise since the third quarter of 2019. Demand for high-end residential properties appeared to return amid the stronger-than-expected economic recovery.
Mid-Levels recorded the highest rental growth of 2.0% among the major submarkets, largely on the back of limited availability. Lower rents today compared to late 2019 also induced tenants to upgrade to larger-sized units.
"With rents having declined 16% between the third quarter of 2019 and the first quarter of 2021, tenants took advantage of the more affordable rental market to upgrade from medium- to large-sized units. This was reflected in the drop in vacancy rates according to the latest figure from the Rating and Valuation Department," said Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong.
Expatriates have traditionally been the main source of leasing demand for luxury housing. But much like last year, there was limited expatriate arrivals in the first half of 2021 due to travel restrictions. For example, visa approvals from the 'General Employment Scheme' and 'Mainland Talents and Professionals Scheme' was only 11,128 in the first half of 2021, accounting for less than 50% of the number in the first half of 2019.
With significantly fewer expatriate arrivals, the luxury rental market was primarily supported by the current pool of residents in Hong Kong. In the first half of 2021, we note that viewing activities improved from the very low level in 2020. Leasing momentum has also picked up steadily as social distancing measures have been gradually relaxed.
"As the work-from-home arrangement becomes popular, it has probably prompted some tenants to upgrade their dwellings to accommodate certain work-related needs, resulting in higher demand for large size units. The market also recorded some eye-popping leasing transactions driven by demand from senior management of mainland Chinese corporates. Also, shrinkage in housing budgets for existing expatriates has prompted some to relocate from the Peak to the Mid-Levels or even further away to the New Territories, resulting in higher demand for high-end rental units in these districts," said Nelson Wong, Head of Research at JLL in Greater China.
Lee said, "Looking forward, with the ongoing travel restrictions, expatriate arrivals are expected to remain limited in the short term. However, we still expect to see more leasing enquiries in the third quarter of 2021 as summer is the traditional home search season. Also, with the expectation of border reopening before the year-end, the luxury leasing market is anticipated to improve gradually."