Hong Kong – February 2020

MARKET IN MINUTES Residential Leasing Savills Research

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RESIDENTIAL SERVICES Hatty Ng Director +852 2378 8631 [email protected] Sdever Li Director +852 2842 4551 [email protected] Teresa Chan Associate Director Luxury residential rents continue slide in Q4 +852 2842 4492 Against a backdrop of the US China Trade War and the social unrest, the number [email protected] of expat arrivals has remained relatively stable while PRC demand has pulled back. RESEARCH Simon Smith • Landlords were not keen to cut asking rents despite the • Serviced apartment rents and occupancy rates sank during Senior Director political and economic uncertainty but some fl exibility the year due to sluggish new demand and increasing Asia Pacifi c exists in negotiations. competition from hotels. +852 2842 4573 [email protected]

• The New Territories (-1.0%) recorded the largest rental fall • Looking ahead to 2020, we expect to see further falls in Jimmy Wong among all regions in the last quarter of 2019. luxury rents of 5% to 10% on Hong Kong Island and 10 to 15% Assistant Manager in Kowloon and the New Territories. +852 2842 4287 • Townhouse rents held up well and this was the only sector [email protected]

recording a rental increment over 2019 as a whole among all Savills plc Savills is a leading global real residential leasing markets. estate service provider listed on “ The leasing market drifted to the London Stock Exchange. The company established in 1855, has • Expat demand has been modest but consistent and we note a rich heritage with unrivalled the end of the year with little growth. It is a company that leads that the fi nance and professional services sector has not rather than follows, and now has over 600 offi ces and associates been as adversely aff ected as some. activity recorded as rents fell throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle East. This report is for general at a slightly slower rate than informative purposes only. It may • Though muted, PRC demand has broadened to include not be published, reproduced or tenants from industries other than fi nance. quoted in part or in whole, nor may in the previous quarter.” it be used as a basis for any contract, prospectus, agreement or other document without prior • Local Hong Kongers remain a feature of the leasing market SIMON SMITH, SAVILLS RESEARCH consent. Whilst every eff ort has been made to ensure its accuracy, as prices, though showing some near term weakness, Savills accepts no liability whatsoever for any direct or continue to challenge local aff ordability. consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.com.hk/research 1 Residential Leasing

MARKET COMMENTARY markets on Hong Kong Island experienced GRAPH 1: Hong Kong Island Luxury Rental Indices The last quarter of the year is traditionally rental declines for a third consecutive quarter. By District, Q1/2003 to Q4/2019 quiet, and Q4/2019 was no exception. Pokfulam (-1.0%) recorded the largest decrease, Mid-Levels Pokfulam Landlords maintained asking rents and followed by Happy Valley/Jardine’s Lookout The Peak Happy Valley/Jardine's Lookout Southside/Shouson Hill what activity we did see was largely in the (-0.7%), The Peak (-0.3%), Southside/Shouson 300 HK$60,000 to HK$90,000 per month range Hill (-0.2%) and Mid-Levels (-0.2%). with Mid-Levels attracting most interest. Expats continued to arrive in modest 250 Luxury apartment rents in Hong Kong numbers and were mostly employed by fi nance Island, Kowloon and the New Territories and professional services fi rms. Despite 200 contracted in the last quarter of 2019, down by the trade tensions and the social unrest, 0.5%, 0.8% and 1.0% respectively, compared the stock market has held up well and a 150 to falls of 1.6%, 3.6% and 3.1% in Q3/2019. healthy IPO pipeline is expected this year, During the whole of 2019, Hong Kong all positives for luxury residential rental

Q1/2003=100 100 Island rents fell by 2.1%, the worst yearly demand. Traditionally, luxury rents are performance since 2014. Kowloon and the highly correlated with Grade A offi ce rents in 50 New Territories posted their worst yearly Central. performance since 2008, with rents dropping PRC demand has pulled back but remains 0 by 5.6% and 6.0% respectively in 2019. focused on the Peak and Southside districts, Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Hong Kong Island recorded smaller rental preferring new developments with good views 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 falls in Q4/2019 compared to Q3/2019, with and high design standards. Budgets for this Source Savills Research & Consultancy luxury rents down by 0.5%, and all sub- group can often top HK$150,000 per month and

GRAPH 2: Kowloon and New Territories Luxury Rental TABLE 1: Savills Residential Rental Indices, Q3/2019 vs Q4/2019 vs 2019 Indices By District, Q1/2003 to Q4/2019

Tsim Sha Tsui / Hung Hom Kowloon Tong Discovery Bay Sai Kung Q3/2019 (%) Q4/2019 (%) 2019 (%) Shatin / Tai Po 200 Luxury Apartments - -1.6 -0.5 -2.1 180 Hong Kong Island

160 Luxury Apartments - -3.6 -0.8 -5.6 Kowloon 140 Luxury Apartments - -3.1 -1.0 -6.0 120 New Territories Q1/2003 = 100 100 Townhouses -2.2 -0.9 0.2 80

60 Serviced Apartments -4.3 -6.4 -12.3 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source Savills Research & Consultancy Source Savills Research & Consultancy

GRAPH 3: Townhouse Rental Indices By District, TABLE 2: Mid-Levels, Happy Valley and Southside Transactions, Q4/2019 Q1/2003 to Q4/2019

Peak Southside SALEABLE HK$ PER MONTH 250 UNIT HK$ PER SQ FT DISTRICT ADDRESS AREA (INCL. MGT. & TYPE SALEABLE (SQ FT) RATES)

200 Mid-Levels Apartment Aigburth 2,168 170,000 78

Regent on the Mid-Levels Apartment 2,072 103,000 50 150 Park

Happy The Leighton Apartment 1,724 110,000 64 100 Valley Hill Q1/2003 =100

Southside Apartment Belgravia 2,197 147,000 67 50 8 Deep Water Southside Apartment 7,677 600,000 78 Bay Drive 0 8 Deep Water Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Southside Apartment 3,302 238,000 72 Bay Drive 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Source Savills Research & Consultancy Source Savills Research & Consultancy savills.com.hk/research 2 Residential Leasing

TABLE 3: Kowloon Transactions Q4/2019

UNIT SALEABLE AREA HK$ PER MONTH (INCL. HK$ PER SQ FT DISTRICT ADDRESS TYPE (SQ FT) MGT. & RATES) SALEABLE

Tsim Sha Tsui Apartment The Harbourside 1,061 55,000 52

Tsim Sha Tsui Apartment Masterpiece 1,041 65,500 63

Kowloon Station Apartment The Cullinan 900 54,000 60

Kowloon Station Apartment Sorrento 625 34,500 55

Kowloon Station Apartment Grand Austin 851 44,000 52

Kowloon Station Apartment The Waterfront 934 41,000 44

Kowloon Station Apartment The Arch 960 49,500 52

Source Savills Research & Consultancy

TABLE 4: New Territories Transactions, Q4/2019

SALEABLE AREA HK$ PER MONTH HK$ PER SQ FT DISTRICT UNIT TYPE ADDRESS (SQ FT) (INCL. MGT. & RATES) SALEABLE

Sai Kung Apartment Mount Pavilia 1,836 62,000 34

Sai Kung House Marina Cove 1,819 77,000 42

Discovery Bay Apartment Positano 1,691 100,000 59

Discovery Bay House Seabee Lane 2,403 105,000 44

Discovery Bay Apartment Seabee Lane 962 45,000 47

Discovery Bay Apartment Seahorse Lane 1,626 65,000 40

Source Savills Research & Consultancy

areas of employment have broadened beyond families looking. We note that pressure for school fi nance to include retail and F&B. places has diminished although most institutions GRAPH 4: Serviced Apartment Rental Indices By With luxury prices up over 180% from their report that they are still reasonably full. Type, Q1/2003 to Q4/2019 low point in 2009, and with price-to-income Townhouse rents were down by 0.9% during aff ordability at historical highs, locals remain the quarter, representing a consecutive three Hotel-like Apartment-like 200 active in the leasing market, priced out or quarters of decline. Peak and Southside waiting for a correction in the sales market. townhouse rents were cut by 0.7% and 1.0% 180 Given prevailing negative real interest rates respectively in Q4/2019. Townhouses were 160 and a tight pipeline of new supply, however, the only sector recording a rental increase

140 it is diffi cult to see a major adjustment in over the year as a whole, however, as rents values, although some near term weakness nudged up marginally by 0.2% during 2019. 120 can be expected. Serviced apartment rents came off heavily by 100 All sub-markets in Kowloon and New 6.4% over the fourth quarter. Over the year as

80 Territories saw the rate of rental decline slow a whole, serviced apartment rents were down in Q4/2019. Shatin/Tai Po (-1.8%) recorded the by 12.3% and average occupancy dropped Q1/2003 = 100 60 largest rental fall over the quarter, followed by from 88.8% to 71.2%. There were not many 40 Kowloon Tong (-1.2%), Sai Kung (-0.7%), Tsim newcomers in the fi nal months of the year

20 Sha Tsui /Hung Hom (-0.7%) and Discovery and many job contracts are being suspended, Bay (-0.6%). Luxury rents in all sub-markets in pending review after the Chinese New Year 0 Kowloon and the New Territories recorded falls (25th January). Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 in all four quarters in 2019, except Discovery Looking ahead to 2020, we expect to see Bay and Shatin/Tai Po. further falls in luxury rents of 5% to 10% on Source Savills Research & Consultancy In Kowloon and the New Territories, we have Hong Kong Island and 10 to 15% in Kowloon seen few new luxury developments and fewer and the New Territories.

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