Hong Kong’s Office Property Market Faces Uncertain Future
As the city’s office property market continues to soften, analysts predict a surge in distressed sales in the medium term. With banks set to call in loans, the outlook for office space in Hong Kong’s main business zones looks bleak.
Prices Plummet
Since October 2018, prime office space prices in Sheung Wan/Central, Wan Chai/Causeway Bay, and Tsim Sha Tsui have plummeted by over 46%. Meanwhile, overall rents across the city’s premium office space segment have fallen 8.6% this year, with forecasts suggesting a further 10% drop in 2025.
Rental Transactions Slump
According to Oscar Chan, head of capital markets at JLL in Hong Kong, rental transactions have significantly decreased, making it difficult for rents to fund loans. “A few years ago, rental transactions would go for 50,000 sq ft, but now leasing transactions are just for 18,000 sq ft, so rents could not fund the loans.”
Banks Take Action
With borrowers defaulting on loans, banks are expected to take action in the next two to five years. Despite recent interest rate cuts, uncertainties surrounding the US Federal Reserve’s next move and the incoming Trump administration’s economic policies have cast a shadow over the market.
Mixed Performance
Tom Ko, executive director and head of capital markets in Hong Kong at Cushman & Wakefield, described the office market’s performance towards the end of 2024 as “mixed.” Looking ahead to 2025, he predicts a continuation of challenges, with more distressed sales anticipated.
Fire Sales on the Horizon
As market conditions persist, fire sales of commercial real estate are likely to increase. Ko noted that while a potential decrease in interest rates may lead to increased transaction activity, the overall market is expected to remain under pressure due to ongoing corrections and financial constraints.
Office Deals Rebound
Despite the challenges, office deals have rebounded in recent months, with 91 registered transactions in November, up 54.2% compared to October. Notable deals include Hong Kong Metropolitan University’s acquisition of Cheung Kei Centre and Chiyu Banking Corp’s purchase of Bonham Majors.
New Supply to Flood the Market
In 2025, 3 million sq ft of new office space will come on stream, putting further pressure on landlords. Sun Hung Kai Properties, Mandarin Oriental, and Hongkong Land are among the developers set to inject new supply into the market.
Rental Market Outlook
Fiona Ngan, head of occupier services at Colliers, predicts that the office leasing market in 2025 will be dominated by lease renewals, as firms seek to optimize costs. However, she forecasts a downward adjustment of 9% in rents in 2025, citing the structural imbalance in office space supply and demand.
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