The Hong Kong office the property market is likely to see more difficult sales in the medium term, as banks will have to ask for loans amid weak demand for office space, according to analysts.
From their peak in October 2018, prices for prime office space in the city’s main business zones of Sheung Wan/Central, Wan Chai/Causeway Bay and Tsim Sha Tsui have fallen by more than 46 percent as of November, according to the latest figures from the Department of rating and evaluation.
Meanwhile, overall rents in the city’s prime office space segment are estimated to be down 8.6% this year, according to real estate firm JLL. The property consultancy predicts office rents to fall by up to 10 per cent in 2025.
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“A few years ago, rental transactions were for 50,000 sq.m. ft. but now leasing transactions are only for 18,000 sq.ft. ft, so the rents couldn’t fund the loans,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “For banks, if a borrower is already a year or two past due, they have to take action no matter what. Certainly in two to five years there will be more cases where banks are taking action.”
“By the end of 2024 the office market showed a mixed performance,” said Tom Ko, executive director and head of Hong Kong capital markets at real estate brokers Cushman & Wakefield. “Looking ahead to 2025, the outlook for the office market suggests continued challenges.”
The outlook for the Hong Kong office property market in 2025. suggest continuing challenges. Photo: Dickson Lee alt=Hong Kong office property market forecasts in 2025. suggest continuing challenges. Photo: Dixon Lee>
Weak sentiment in the city’s office property market could lead to brisk sales of more stalled commercial properties next year.
“Even worse sales are expected as market conditions continue,” Ko said. “A potential cut in interest rates could lead to increased transaction activity, but the overall market is expected to remain under pressure due to ongoing adjustments and financial constraints.”
“Although the office sector accounted for 43% of the total number of transactions, indicating some level of activity, the market is undergoing corrections with significant reductions in offer prices,” he said. “This has attracted end users looking to acquire assets for future rental savings.”
Ko pointed out that “the pure investment market remains challenged by high interest rates leading to sluggish overall investment activity.”
This environment “has led landlords to offer price discounts when selling properties, contributing to further corrections in property prices,” he added.
Hong Kong’s office market has seen a surge in property sales in recent months, according to data from Midland IC&I, a subsidiary of Midland Holdings.
Office deals bounced back in November with 91 deals recorded, up 54.2% on deals in October and the highest monthly number since May 2023, according to the commercial property agency.
A notable deal recorded this month was the HK$2.65 billion (US$341 million) acquisition of the Capital University of Hong Kong acquisition of Cheung Kei Center in Hung Hom. It marks the city’s second-biggest office deal this year, following the sale of the Nexxus building in Central for HK$6.4 billion to companies and entities linked to Taiwanese tech tycoon Steve Chang in February.
View of office buildings in Central, Hong Kong’s financial district. Photo: Dickson Lee alt=View of office buildings in Central, Hong Kong’s financial district. Photo: Dixon Lee>
Meanwhile, Bonham Majors – with a gross built-up area of 86,005 sq.m. ft. – was recently bought for about HK$1.3 billion by Chiyu Banking Corp, according to Midland IC&I. Appliance manufacturer and retailer German Pool has acquired several floors with a total area of 20,500 sq m. ft. at Rydakan Capital Tower in Kwun Tong for HK$164 million.
In the office rental market, landlords are unlikely to find relief, with 3 million square feet of new space set to come online in 2025.
Sun Hung Kai Properties will bring 2.1 million square feet of space to the market next year when its international gateway center in Tsim Sha Tsui is completed, according to Cushman. One Causeway Bay, Mandarin Oriental and Land Hong Kong project, will add 410,400 sq. ft., while SEA Holdings will inject 310,700 sq.ft. ft. from its Kowloon East development.
“The office leasing market in 2025 will be dominated mainly by lease renewals as most firms intend to retain their current portfolio of office space to optimize costs,” said Fiona Ngan, Head of Tenant Services at Colliers.
“We see that mainland Chinese firms are keeping up with the leasing momentum in relatively small to mid-sized office space,” Ngan said. “However, given the current structural imbalance in supply and demand for office space and the rising vacancy rate, we forecast a 9 percent downward correction in rents in 2025.”
