Hong Kong Property Market: Office Recovery Trails Behind Residential and Retail Sectors

Office Market Faces Persistent Challenges

Hong Kong's office market is likely to trail other segments in terms of recovery as interest rate cuts and easier mortgage financing rules drive bigger interest and deals in the residential and retail properties, analysts said.

Office vacancy rates continued to worsen last month in more business districts in the city including Central, Wan Chai, Causeway Bay and Tsim Sha Tsui, JLL said in its latest report. Rents fell by 1.1 percent from August, the property consultancy said.

Future Outlook: Supply vs. Demand

“It would take some time to climb out of the trough, especially now enterprises are still finding it challenging to expand their office space,” said Martin Wong, senior director and head of research and consultancy for Greater China at Knight Frank.

The market is facing an oversupply situation as vacancy rates hold near all-time highs, according to consultancy CBRE. Hong Kong developers and landlords are set to add about 3 million square feet of new office space next year, the firm forecasts, compounding a glut.

• Upcoming New Buildings:
• International Gateway Centre in Tsim Sha Tsui by Sun Hung Kai Properties (2.1 million sq ft)
• One Causeway Bay project by Mandarin Oriental and Hongkong Land (410,400 sq ft)
• Project of SEA Holdings in Kowloon East (310,700 sq ft)

This is likely to worsen vacancy rates by the end of 2025, while rents are forecasted to decline by another 5 percent, according to CBRE.

“We forecast grade A office rents will decline by 8 percent in 2024, followed by a similar decline in 2025,” said Fiona Ngan, head of occupier services at Colliers Hong Kong. The tenants’ market is likely to persist well into 2025, she added.

Residential and Retail Areas Show Strong Performance

Reports of brisk weekend home sales are underpinning optimism in the residential property market. Apart from rate cuts, policy measures to spur demand have also helped.

Buyers of homes and commercial properties are now allowed to borrow up to 70 percent of their property’s value. The debt servicing ratio was raised to 50 percent from 40 percent for both residential and non-residential properties.

“The recent rate cut and cheaper prices have improved home affordability and are expected to stimulate a recovery in home buying sentiment in the primary market among local end users,” JLL said.

Hong Kong’s retail properties have attracted some big-name tenants, even though sales have remained weak following a 10.1 percent drop in August from a year earlier. Seoul-based sportswear brand Fila leased several shop lots totaling 5,643 sq ft for HK$1.8 million (US$232,000) a month.

A recovery in global tourism, coupled with measures to boost the influx of talents and loosen visa requirements, are likely to support a healthier retail environment in 2025, said Kathy Lee, head of research at Colliers Hong Kong. Rents for high street shops are expected to increase by 5 percent, she added.