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At Your Service
Hong Kong’s serviced apartments expect a positive oAt Your Serviceccupancy in 2010
| Text : Andrea Zavadszky | Photo : Gateway Apartments, www.thinkstockphotos.com |
The Year of the Tiger promises to be a volatile one and difficult to forecast. Having gone through a bad patch, some owner-operators are rather guarded when it comes to predicting the coming year’s fortunes for serviced apartments. However, other industry insiders are decidedly upbeat and anticipate an exciting and prosperous year.
“It is difficult to make any forecast, but hopefully the recovery will be steady, multinationals will restart projects and [serviced apartments’] occupancy will go up, while hopefully rentals will remain steady,” Cynthia Wong, Hanlun Habitat’s assistant general manager, says cautiously, adding, “Our occupancy closely follows the Hang Seng Index.”
However, Anne-Marie Sage, Jones Lang Lasalle’s (JLL) regional director, residential, is optimistic: “The luxury leasing market is looking very positive for 2010, with lots of noise of expansions of bank headcounts and new legal and hedge fund companies coming into HK. This will mean the serviced- apartments industry will also do well.”
Relying on the draw of a booming Chinese economy, with Hong Kong is still the gateway to China, the city can expect a large number of multinationals and smaller companies to move here in 2010, especially from places hit hard by the recent financial turmoil.
Multinationals that cut headcounts in 2008 are also likely to add to their workforce and companies that closed shop in Hong Kong in 2008-09 are considering coming back as well.
Simon Galpin, the director general of InvestHK, believes the year may be even better than last year when 275 companies moved to Hong Kong, 80 per cent of which were new to the city. He adds that the majority comes from the UK, the US and Japan.
“They often use serviced apartments. We always advise them to use serviced apartments, as it takes a bit of time to work out where you want to live,” he says.
Galpin points out the new trend of more and more small companies moving to Hong Kong from overseas; these may be using standard or boutique serviced apartments. On the other hand, international law firm Withers revealed in a January poll of its clients that the UK may face a significant exodus of its high earners because of tax reasons. One option these high earners are looking at is Hong Kong and many of them are considering moving their businesses as well as their families here – a move which would benefit the luxury segment.
According to JLL, there are about 14,500 serviced apartments in Hong Kong, with 48 per cent of these on Hong Kong island side, 40 per cent in Kowloon and 12 per cent in the New Territories, figures closely corresponding to the distribution of the city’s Grade A office buildings.
Serviced- apartment development is not well regulated and it is fairly easy to convert hotels, residential developments and office buildings into serviced apartments, making it hard to predict what will be on the market in the future.
Following the October opening of Sheung Wan’s Le Rivage, with 50 units, there will definitely be about 157 units coming up in the first half of this year, including Chinachem’s The Lily at 129 The Repulse Bay Road, which has been standing unoccupied since its completion in 2002. Competition is likely to remain intense as serviced apartments are targeting a fairly small, niche market segment.
“Coming up, there may be consolidation, bigger companies buying out small ones,” says Hanlun Habitat’s Wong. “The small companies have no economy of scale.”
In spite of the expanding range on offer, serviced apartments operators in Kowloon seem confident they will fill their rooms. Rene Holenweger, assistant general manager of Gateway Apartments in Tsim Sha Tsui, foresees 90 per cent occupancy, while the management of Harbour Plaza 8 degrees in To Kwa Wan believes occupancy will be around 80 per cent.
According to Wong, occupancy on Hong Kong Island has been improving since March 2009 and housing budgets seem to be coming back, while Pilar Morais, the executive director of Chi International, with one property in Hong Kong and three in Kowloon, comments that the outlook is positive.
Rates increased by 21 per cent between the first quarter of 2007 and the last quarter of 2008 and have since fallen by five per cent from their peak in 2008, according to JLL. At the lowest point, several serviced apartments with hotel licences started offering daily rates and some of them, like CHI Residences 279 in Yau Ma Tei, still do. Others, such as Hanlun’s Lily 1 and 2, Orchid and Peach Blossom, all Mid-levels have no hotel licences and their minimum stay is one month.
While the prospects for occupancy seem to be positive, they may not translate into a speedy increase in rental prices. Although JLL’s Sage says rentals “will rise steadily throughout the year, we would estimate 7 per cent to 12 per cent,” operators are not so optimistic.
Holenweger only ventures to say that rents have strengthened “a little bit”, and Morais cautions: “As any other hospitality operator, serviced-apartment companies need to be aware and understand how the economic changes affect spending habits and be flexible to that.”
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