Due to the global financial turmoil and economic slowdown, the luxury residential leasing market has experienced a rental decline of 24.6% between August 2008 and April 2009. The leasing demand has dropped significantly as many corporations implemented different cost-cutting measures such as staff retrenchments and the reduction of housing budgets. For example, the number of summer interns, who have been one of the key demand groups for short-term and studio-type serviced apartments, has substantially reduced this year.
"Apart from less new leasing demand, the serviced apartment market was characterised by an increasing number of local relocations during March and April 2009," said Simon Lo, Director of Research & Advisory, Colliers International. "Given the general tightening housing allowances, a number of occupiers have chosen to relocate to cheaper areas, or to downgrade their accommodation in terms of size or quality."
According to the Serviced Apartment Overview – June 2009 published by Colliers International, the average rental of serviced apartment decreased notably 6.4% quarter-on-quarter (QoQ) and 5.4% QoQ in 4Q 2008 and 1Q 2009, respectively. However, the pace of decline slowed to -1.7% month-on-month in April 2009. The average rental fall of serviced apartments, registering -12.9% between August 2008 and April 2009, was also less severe than that of -24.6% for luxury residential leasing property, suggesting that the serviced apartment sector has been relatively more resilient amid the current downturn of the residential leasing market.
In view of a demand contraction, some vendors have changed their leasing strategies in offering competitive rentals so as to fill their units. Individual serviced apartments of medium-to-large size saw a double-digit fall in rental, which was a steeper cut than the overall serviced apartment market. Additionally, the majority of serviced apartment tenants have opted for a short term of less than six months, representing 75% of the pie.
Looking ahead, the challenge in the luxury residential leasing market might represent opportunity for the serviced apartment sector, which features flexible lease terms. For example, some occupiers prefer to stay in serviced apartments for a short period of three months or less before they commit to a long lease in standard units when the economy stabilises.
"Sustained weakness in occupational demand and the cost-cutting initiatives among multinational companies remain the major challenges for the overall residential leasing market," said Simon. "The average luxury residential rentals are expected to fall 12% over the next twelve months, while the potential downward adjustment of serviced apartment rental will limit to 8% during the same period."