At your service
Serviced apartments in Hong Kong are so popular that they are setting records in terms of rentals. They also continue to command a sizeable premium over apartments in the same areas, says Alex Frew McMillan
It’s a good question whether you should call them tenants, like in apartments, or guests, like in hotels. But whatever name you choose, the people who use serviced apartments are willing to pay an extra cost to benefit from the flexibility of a serviced apartment, which doesn’t require a long-term lease.
On average, serviced apartments cost 20 percent more to rent than standard units in the same neighbourhood. The average rental rate for serviced apartments in Central, the most popular area, hit HK$55.40 per square foot per month in the first quarter of this year, according to a new report from property brokerage Colliers International.
So the rental on a 500-square-foot serviced apartment would be HK$27,700 per month. And that’s the rough starting rate for most residences, where suites may begin at around 450 square feet but range up to 2,000 square feet; the latter setting you back a sweet HK$111,000 per month.
People are apparently lining up to pay that kind of rate. Thanks to strong demand, a number of leasing transactions have recently set new benchmarks for the serviced-apartment business in the city.
For instance, a tenant inked a deal in April to rent a top-floor penthouse in a serviced-apartment block in Central for more than HK$600,000 per month.
The influx of high-level executives using Hong Kong as a base from which to manage operations in China has caused a “steep imbalance of demand and supply, especially for large-size units,” the Colliers report notes. It says prices for serviced apartments in downtown Hong Kong are rising dramatically, with new transactions up 70 percent in eight months on comparable deals in mid-2007. Tenants who insist on large pads are being pushed out of Central, where the supply is often exhausted, to Tai Tam or Repulse Bay on the south side of Hong Kong Island.
People who move in and out of Hong Kong enjoy the flexibility of the short-term contracts. Harried executives who may want a slightly more permanent base than a hotel room still benefit from regular maid service and sometimes other add-ons like gyms, communal rooftops, concierges and room service.
Serviced apartments are also particularly popular with people who are just moving to Hong Kong and aren’t yet sure where they want to live.
“It came down to convenience with a taste for home, I guess,” says John Madsen, a telecom consultant who recently set up Solana.hk Ltd.
When he came to Hong Kong, Madsen moved into the serviced apartments at Four Seasons Place, adjoining the Four Seasons hotel, and signed a multi-month lease.
“It gives you the ability to cook and feel more settled and permanent somewhere,” he says. “But then you have all the conveniences of being able to focus on work and work-related issues rather than home-related things, fixing stuff, dealing with utilities and so on.”
Serviced apartments connected to large hotels are popular because they frequently offer access to the hotel’s facilities: the pool, the spa, the workout room, the restaurants. Tenants may get discounts over regular walk-in customers. At the very least, living in a place connected to a hotel guarantees you should be able to get a cab (and directions) downstairs.
Whether in a hotel-based or boutique serviced apartment, the added space and the kitchen often appeal to executives who are relocating with families. This type of set-up is also a hit with people specialising in project-based work, who may not know how long they are going to stay in Hong Kong.
Madsen says he got a small discount, around 3 percent, for signing a contract for close to a year. But the rate was already a much better deal than paying for a comparable hotel.
The rack rate at the Four Seasons hotel starts at around HK$3,900 per night for a standard room, the steepest rate in the city. But Madsen says a serviced apartment might be HK$2,185 or HK$2,260 for a similar type of room.
“Hotel prices are not going down,” Madsen says, noting that places that are popular with executives such as the J.W. Marriott, the Mandarin Oriental, the Conrad and the like still start at HK$2,340 or so a night. They have good executive lounges and business services, but such facilities come at a price.
“With a serviced apartment, even if you are committing to just a month, the effective rate ends up coming down significantly, maybe 50 percent, depending on the property,” Madsen adds. “It ends up being considerably less expensive than living in any hotel of a similar or higher quality.”
Colliers says the most popular lease term for a serviced apartment is one to three months, accounting for 73 percent of all serviced-apartment transactions that the company concluded last year.
One of the biggest downsides with a serviced apartment is that many of the most popular developments downtown now have waiting lists. That makes it difficult to plan ahead if you know you are going to be in Hong Kong at a certain time.
“The problem with serviced apartments now is that the good ones are in quite high demand,” Madsen says. “You really can’t plan in advance. You can put your name on a list but won’t know for sure whether you will get in until two weeks in advance.”
And while rates at hotels have been rocketing upwards, prices are also expected to rise with serviced apartments.
“Rental growth in the serviced-apartment sector is expected to be 15 percent over the next 12 months,” says Simon Lo, the director of research and advisory at Colliers.
While chic little serviced apartment blocks are cropping up all over the city, there are two major projects due to open later this year. Sun Hung Kai Properties’ The HarbourView Place, in West Kowloon above Kowloon Station, will take up 20 floors in the Cullinan II, and is being promoted as the “tallest luxury serviced-suite hotel in Hong Kong”. It will have 70 suites from 464 square feet to 1,623 square feet in its first phase. Tenants will be able to share the W Hong Kong’s pool, which will be the tallest pool in the city upon completion in August.
Meanwhile Shama, which opened its first serviced apartment block in SoHo back in 1996, is now expanding into Fortress Hill. The first phase is due to open in the middle of this year, with around 40 units out of a total 90.
A one-bedroom apartment will start at HK$17,000/month at the new Shama project with the smallest units at 382 square feet, rising to HK$48,000/month for a two-bedroom pad with a terrace that could be up to 1,481 square foot.
It is worth noting that the new projects are in West Kowloon and Fortress Hill. As with office space, there is almost no new supply of serviced apartments coming up in the near future in Central or neighbouring Admiralty.
Colliers concludes that any new supply in Central will likely be taken up by people in banking and finance-related industries. It says serviced apartments in areas on the fringe of downtown should see a heavy amount of spillover from the strong demand in the city centre.