Where do Hong Kong’s serviced apartments stand right now and where are they heading?

Serviced apartments in Hong Kong are big business, one that seems to be growing even as industry analysts worry it’s shrinking. And worries that it’s shrinking are well founded. “The perception is that it’s really difficult to get into schools, pollution is not good and housing is very expensive,” says Gail Keefe, national director for residential leasing and relocation for Jones Lang LaSalle of the SAR. “We have seen over the last few years people doing a four-day preview in Hong Kong, a four-day preview in Singapore, and then they’ll decide.”

According to JLL’s research leasing demand from the financial services industry softened in early 2013, largely on the back of a 25 percent drop in new arrivals to Hong Kong. Even still, the legal and retail industries picked up some of the difference — though potential tenants are opting for less expensive properties. And while residential leasing rates are slipping, serviced apartment rents are holding steady, off only 0.4 percent from the end of 2012 to the first quarter of 2013, averaging almost $63 per square foot per month. Demand isn’t vanishing so much as it’s shifting — both in terms of money, facility and location.

When Mid-Levels, the Peak and Island South were once the be all and end all of luxury residential leasing in Hong Kong, Tai Po, Sai Kung, Kowloon Tong and Kowloon Station have recently joined that elite club. New supply is going to be thin for the rest of 2013 and into the next year, and a majority of that new supply is headed out of the stalwart luxury districts. The New Territories is where the activity is happening in 2016 and beyond. On top of that, serviced leasing activity goes hand in hand with the office market, and the flight to non-core districts in Kowloon East is leading the current charge away from the Island. The aggressive government plan for its second CBD and improved or expanded infrastructure in the east end (the Wanchai Bypass, the Island Eastern Corridor link, more MTR expansion) will only keep all eyes on Kowloon. Vega Suites won’t be alone for long.

Other crucial factors in where families choose to lease both serviced and regular flats are the schools in the district and environment. “Certainly pollution is still a major issue, and it is perceived that it’s cleaner in Clearwater Bay and Sai Kung so people are open to that as a consideration,” notes Keefe. “Schooling is still a major issue in Hong Kong though things may be easier … with Harrow having opened last year and Kellett this year.” Kellett, Hong Kong Academy (Sai Kung) and French International (Hung Hom) will open or expand campuses this year or next, joining Harrow (Tuen Mun) and German-Swiss (primary, Wanchai) in 2011 and ’12 among others. None is in a traditional serviced residence hotspot, and Kellett is in Kowloon Bay, a matter of steps from buzzy Kowloon East. A long way from Mid-Levels.