Hong Kong office property market is likely to see more disappointing sales in the medium term, as banks will need to call on loans amid soft demand for office space, according to analysts.
From their peak in October 2018, prime office space prices in the city's main business zones of Sheung Wan / Central, Wan Chai / Causeway Bay and Tsim Sha Tsui fell by more than 46 per cent in November, according to the latest data by the Rating and Valuation Department.
Meanwhile, overall rents across the city's premium office space segment are estimated to have fallen by 8.6 percent this year, according to real estate firm JLL. The property consultancy predicts that office rents will fall by as much as 10 per cent in 2025.
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“A few years ago, rental transactions would go for 50,000 square feet, but now leasing transactions are only for 18,000 square feet, so rents could not finance the loans,” said Oscar Chan, JLL's head of capital markets in Hong Kong. “For the banks, if a borrower has failed for a year or two already, they have to act anyway. Definitely, in two to five years, there will be more cases of banks acting.”
“Toward the end of 2024, the office market showed a mixed performance,” said Tom Ko, executive director and head of capital markets in Hong Kong at real estate brokers Cushman & Wakefield. “Looking ahead to 2025, the outlook for the office market suggests continued challenges.”
The outlook for Hong Kong's office property market in 2025 suggests continued challenges. Photo: Dickson Lee alt=The outlook for the Hong Kong office property market in 2025 suggests continued challenges. Photo: Dickson Lee >
The weak sentiment in the city's office property market could see fire sales of more distressed commercial real estate next year.
“More distressed sales are anticipated as market conditions continue,” Ko said. “A possible reduction in interest rates may lead to increased transaction activity, but the overall market is expected to remain under pressure due to ongoing corrections and financial constraints.”
“Although the office sector accounts for 43 per cent of the total number of transactions, indicating some activity, the market has been undergoing corrections with significant reductions in asking 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 a challenge due to high interest rates, leading to sluggish overall investment activity”.
This environment “has motivated landlords to offer price reductions on property disposals, contributing to further corrections in property prices”, he added.
According to data from Midland IC&I, a subsidiary of Midland Holdings, Hong Kong's office market has seen property sales rise in recent months.
Office deals rebounded in November with 91 registered transactions, up 54.2 per cent on deals in October and the highest monthly number since May 2023, according to the commercial property agency.
A notable deal recorded that month was the Hong Kong Metropolitan University's HK$2.65 billion (US$341 million) acquired Cheung Kei Center in Hung Hom. That marked the city's second-biggest office deal for this year, following the HK$6.4 billion sale of the Nexxus Building in Central to companies and entities linked to Taiwanese tech tycoon Steve Chang in February.
A view of office buildings in Central, Hong Kong's financial district. Photo: Dickson Lee alt=A view of office buildings in Central, Hong Kong's financial district. Photo: Dickson Lee >
Meanwhile, Bonham Majors – with a gross floor area of 86,005 square feet – was recently bought for about HK$1.3 billion by Chiyu Banking Corp, according to Midland IC&I. Equipment manufacturer and retailer German Pool bought several floors, with a total space of 20,500 square feet, at Rydakan Capital Tower in Kwun Tong for HK$164 million.
In the office rental market, landlords are unlikely to find relief as 3 million square feet of new space will become operational in 2025.
Sun Hung Kai Property will put 2.1 million square feet of space on the market next year, when its International Gateway Center in Tsim Sha Tsui is completed, according to Cushman. One Causeway Bay, Mandarin Oriental and Hong Kong land project, will add 410,400 square feet, while SEA Holdings will inject 310,700 square feet from its Kowloon East development.
“The office leasing market in 2025 will be largely dominated by lease renewals, as most companies intend to retain their existing office space portfolio for cost optimisation,” said Fiona Ngan, head of occupier services at Colliers.
“We see that Mainland Chinese companies have been keeping pace with the leasing momentum in relatively small to medium-sized office space,” said Ngan. “However, given the current structural imbalance in the supply and demand for office space and the upward vacancy rate, we anticipate a downward adjustment of 9 per cent in rents in 2025.”
