Hong Kong’s office property market is likely to see more distressed sales in the medium term, as banks will need to call on loans amid a soft demand for office space, according to analysts.
From their peak in October 2018, prices of prime office space in the city’s main business zones of Sheung Wan/Central, Wan Chai/Causeway Bay and Tsim Sha Tsui declined by more than 46 per cent as of November, according to the latest data from the Rating and Valuation Department.
Overall rents, meanwhile, across the city’s premium office space segment are estimated to have fallen 8.6 per cent this year, according to real estate firm JLL. The property consultancy forecasts office rents to drop by as much as 10 per cent in 2025.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
“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,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “For the banks, if a borrower has defaulted for one or two years already, they have to take action no matter what. Definitely, in two to five years, there will be more cases of banks taking action.”
“Towards the end of 2024, the office market exhibited 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 a continuation of challenges.”
The outlook for Hong Kong’s office property market in 2025 suggests continuing challenges. Photo: Dickson Lee alt=The outlook for Hong Kong’s office property market in 2025 suggests continuing 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 persist,” Ko said. “A potential decrease 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.”
“While the office sector accounted for 43 per cent of total transaction numbers, indicating some level of 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 challenged due to high interest rates, leading to sluggish overall investment activity”.
This environment “has prompted landlords to offer price discounts on property disposals, contributing to further corrections in property prices”, he added.
According to data from Midland IC&I, a subsidiary of Midland Holdings, the Hong Kong office market has seen property sales pick up in recent months.
Office deals rebounded in November with 91 registered transactions, up 54.2 per cent compared to deals in October and the highest monthly number since May 2023, according to the commercial property agency.
A notable deal recorded that month was Hong Kong Metropolitan University’s HK$2.65 billion (US$341 million) acquisition of Cheung Kei Centre in Hung Hom. That marked the city’s second-largest 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 sq ft – was recently bought for about HK$1.3 billion by Chiyu Banking Corp, according to Midland IC&I. Appliance-maker and retailer German Pool acquired several floors, with a total space of 20,500 sq ft, at Rydakan Capital Tower in Kwun Tong for HK$164 million.
In the office rental market, landlords are unlikely to find relief because 3 million sq ft of new space will come on stream in 2025.
Sun Hung Kai Properties will put 2.1 million sq ft of space into the market next year, when its International Gateway Centre in Tsim Sha Tsui is completed, according to Cushman. One Causeway Bay, a Mandarin Oriental and Hongkong Land project, will add 410,400 sq ft, while SEA Holdings will inject 310,700 sq ft from its Kowloon East development.
“The office leasing market in 2025 will be mainly dominated by lease renewals, as most firms intend to keep its current office-space portfolio for cost optimisation,” said Fiona Ngan, head of occupier services at Colliers.
“We see Mainland Chinese firms have been keeping up with the leasing momentum in relatively small to midscale office space,” Ngan said. “However, given the current structural imbalance in office space supply and demand and the upward vacancy rate, we forecast a downward adjustment of 9 per cent in rents in 2025.”
