Central is the most established business district in Hong Kong and is home to some of the world's largest financial institutions. It has excellent transportation links, with several MTR stations and bus routes, making it easy for employees to commute to and from work. Central also has a range of amenities, including shopping centers, restaurants, and bars.

Admiralty is a popular location for multinational companies and is home to several major banks and financial institutions. It has excellent transportation links and is connected to Central via a series of walkways and escalators. Admiralty also has a range of amenities, including shopping centers, restaurants, and bars.

Wan Chai is a popular location for startups and SMEs and is home to a number of co-working spaces. It has good transportation links and is connected to Admiralty via a series of walkways and escalators. Wan Chai also has a range of amenities, including shopping centers, restaurants, and bars.

Causeway Bay is a bustling shopping and commercial district in Hong Kong. It has excellent transportation links, with several MTR stations and bus routes. Causeway Bay is popular among retailers, but also has office spaces available for rent.

Tsim Sha Tsui is a popular location for businesses looking to establish a presence in Kowloon. It has excellent transportation links, with several MTR stations and bus routes, and is close to the cross-harbour tunnel. Tsim Sha Tsui is home to several major hotels and has a range of amenities, including shopping centers, restaurants, and bars.

Quarry Bay is a popular location for businesses in the creative industries, with several media and advertising companies based in the area. It has good transportation links, with several MTR stations and bus routes, and is home to several co-working spaces.

Kwun Tong is a growing business district in Kowloon, with several new office developments currently under construction. It has good transportation links, with several MTR stations and bus routes, and is home to several technology and innovation companies.

Cyberport is a technology-focused business park located on the south side of Hong Kong Island. It has excellent transportation links, with a dedicated MTR station, and is home to several technology and innovation companies. Cyberport also has a range of amenities, including a fitness center, restaurants, and a cinema.

The Hong Kong office leasing market in Q1 2025 showed signs of stabilization but continued to face challenges due to oversupply and economic uncertainties.

Market Performance in Q1 2025

• Leasing Volume: Gross leasing volume in Q1 2025 increased by 12.4% quarter-on-quarter (q-o-q) to 855,300 sq. ft., marking the first increase since Q1 2024. Leasing activity was primarily driven by relocations, consolidations, and upgrades from non-Grade A to Grade A office buildings. However, leasing demand remained below pre-pandemic levels, with smaller-sized transactions dominating.

• Net Absorption: Net absorption was negative for the second consecutive quarter, registering -249,400 sq. ft. in Q1 2025. Greater Central saw positive net absorption of 40,400 sq. ft., supported by improved occupancy at new developments like The Henderson. In contrast, Hong Kong East recorded negative absorption of -61,900 sq. ft. due to exits by insurance firms, and Kowloon East hit a record low of -249,600 sq. ft., driven by relocations such as ICBC’s exit from Kwun Tong.

• Vacancy Rates: The influx of 328,100 sq. ft. of new office supply, combined with negative net absorption, pushed the overall vacancy rate to a record high of 17.5%, equivalent to 15.6 million sq. ft. of vacant space. Central’s vacancy rate remained relatively lower at around 9.9%, while decentralized submarkets like Kowloon East saw higher vacancies.

• Rental Trends: Overall Grade A office rents declined by 2.5% q-o-q in Q1 2025, with a projected full-year decline of 7–9% due to persistent oversupply and weak economic conditions. Central rents dropped the least, by 0.5% q-o-q, reflecting sustained demand for premium spaces.

Economic and Market Drivers

• Economic Backdrop: Hong Kong’s economy faced challenges in Q1 2025, with global trade uncertainties and potential U.S. policy changes under the new administration adding volatility. Anticipated economic stimulus from mainland China and global interest rate reductions provided some optimism, but these were offset by potential trade barriers.

• New Supply: Nearly 4 million sq. ft. of new private office supply is expected to enter the market in 2025, further pressuring vacancy rates and rents. However, a significant reduction in new supply is anticipated from 2027, which could stabilize the market in the long term.

• Tenant Trends: Demand was led by the finance, insurance, real estate, professional, and business services (FIREBS) sectors, which accounted for 61.7% of new lettings and expansions in 2024, a trend that continued into Q1 2025. Larger corporates increasingly sought spaces exceeding 20,000 sq. ft., with 17% of new lettings in 2024 for spaces of 50,000 sq. ft. or more—the highest since 2019. This reflects a shift toward consolidation and demand for larger, flexible floor plates.

Industry Commentary

• JLL: JLL reports that leasing activity improved in 2024, with 1.1 million sq. ft. of positive net absorption over the first 11 months, surpassing the 10-year annual average of 670,000 sq. ft. For 2025, JLL anticipates continued improvement in leasing volume, particularly for sizable transactions in the insurance, financial trading, and asset management sectors. However, rents are projected to decline by 5–10% due to oversupply and economic uncertainties. Landlords are advised to offer flexible floor plates and incentives to attract tenants.

• CBRE: CBRE notes that Q1 2025 saw improved leasing momentum, driven by relocations and upgrades, but negative net absorption and new supply pushed vacancy rates to historic highs. CBRE expects leasing demand to strengthen throughout 2025 as economic momentum improves, particularly with anticipated interest rate cuts. However, high vacancy and new supply will keep rents under pressure.

• Cushman & Wakefield: Cushman & Wakefield highlights that Grade A office rents softened by 2.5% q-o-q in Q1 2025, with a full-year decline of 7–9% expected. The recovery of IPO activities and stock market performance could support demand from the banking and finance sectors, with some tenants pursuing flight-to-quality moves to prime areas due to attractive rental levels.

• Savills: While specific Q1 2025 reports from Savills are unavailable, their 2024 insights suggest continued demand for high-quality office spaces, particularly from financial and professional services sectors. This trend likely persisted into Q1 2025, with mainland Chinese firms driving significant leasing activity in premium submarkets like Central.

• Colliers and Knight Frank: Colliers and Knight Frank emphasize the flight-to-quality trend, with tenants capitalizing on lower rents to upgrade to newer, greener buildings. Knight Frank predicts vacancy in Central could reach unprecedented levels in 2025 due to new supply, but demand for premium spaces remains steady.

Outlook for 2025

The Hong Kong office leasing market is expected to see gradual improvement in leasing volume throughout 2025, driven by anticipated interest rate cuts and economic stimulus from mainland China. However, the substantial new supply and high vacancy rates will continue to exert downward pressure on rents, particularly in decentralized submarkets. Landlords will need to remain competitive by offering flexible lease terms and incentives to attract tenants. The flight-to-quality trend is likely to persist, with premium submarkets like Central outperforming others due to sustained demand from financial and professional services sectors.

Vacancy Rates in Q1 2025

• New Supply: In Q1 2025, approximately 328,100 sq. ft. of new office space was added, significantly lower than the 4.1 million sq. ft. recorded in Q4 2022, which was the highest since 2008. However, the full-year 2025 supply pipeline is substantial, with nearly 3.5 million sq. ft. expected, including major projects like the International Gateway Centre (2.1 million sq. ft.) and One Causeway Bay (410,000 sq. ft.). This ongoing supply boom continues to pressure vacancy rates.

• Overall Vacancy: The overall vacancy rate reached a record high of 17.5% in Q1 2025, equivalent to approximately 15.6 million sq. ft. of vacant space, up from 13.0 million sq. ft. in Q4 2022. This increase reflects the influx of new supply and negative net absorption, with an additional 2.6 million sq. ft. of vacant space since Q4 2022. The vacancy rate could climb to 18.9% by year-end 2025 due to nearly 3.2 million sq. ft. of new supply, with 87% of new offices remaining unoccupied.

• Submarket Trends:

  • Kowloon East: Vacancy rates in Kowloon East surged to approximately 24.5% in Q1 2025, up from 22.4% in Q4 2022, driven by negative absorption (-249,600 sq. ft.) and new completions struggling to attract tenants. This submarket continues to face challenges due to its decentralized location and high availability.

  • Hong Kong East: Unlike Q4 2022, where vacancy fell by 0.4-ppt to 13.2%, Hong Kong East saw vacancy rise to around 14.0% in Q1 2025, reflecting negative absorption of -61,900 sq. ft. due to exits by insurance firms.

  • Greater Central: Vacancy in Central increased to 9.9% in Q1 2025, up from 9.4% a year earlier, but remained lower than the citywide average due to sustained demand for premium spaces. The influx of new buildings like The Henderson has contributed to higher vacancy, though positive absorption of 40,400 sq. ft. mitigated some pressure.

  • Wan Chai/Causeway Bay: Vacancy rose to approximately 8.5% in Q1 2025, up from 7.9% in Q4 2022, driven by weaker demand and competition from newer developments.

  • Tsim Sha Tsui: Vacancy in Tsim Sha Tsui stabilized at around 10.5% in Q1 2025, slightly improved from 10.7% in Q4 2023, as some buildings were taken off the market for redevelopment.

Rental Trends in Q1 2025

• Overall Rents: Grade A office rents declined by 2.5% q-o-q in Q1 2025, a sharper drop than the 1.6% q-o-q decline in Q4 2022. Full-year 2025 rents are projected to fall by 7–9% due to persistent oversupply and weak economic conditions. Citywide rents are now approximately 20% below their peak levels from six years ago.

• Submarket Trends:

  • Greater Central: Rents in Central fell by 0.5% q-o-q in Q1 2025, the smallest decline among submarkets, reflecting resilience due to demand from financial and professional services sectors. This compares to a 2.2% q-o-q drop in Q4 2022. Annual rental declines in Central were around 12.0% in 2024, but the pace has slowed in 2025.

  • Wan Chai/Causeway Bay: Rents dropped by 3.8% q-o-q in Q1 2025, a significant moderation from the 14% q-o-q decline in Q4 2022, as demand for high-quality spaces stabilized. The submarket’s exposure to co-working and financial services continues to influence rental volatility.

  • Hong Kong East: Rents fell by 2.0% q-o-q in Q1 2025, compared to a 0.6% q-o-q decline in Q4 2022, making it one of the weaker performers annually with a projected 5–7% y-o-y decline in 2025. The submarket’s 6.5% annual decline in 2022 was among the highest, but recent trends show slight stabilization.

  • Tsim Sha Tsui: Rents declined by 1.8% q-o-q in Q1 2025, compared to a 2.0% q-o-q drop in Q4 2022, with a full-year 2025 decline projected at 4–6%. Tsim Sha Tsui has shown relative resilience, with stable vacancy and demand from smaller occupiers.

  • Kowloon East: Rents fell by 2.8% q-o-q in Q1 2025, reflecting high vacancy and competition from newer, cost-effective buildings. This follows a 2.2% annual decline in 2022, with further softening expected due to oversupply.

Key Insights and Outlook

• Market Dynamics: The Q1 2025 market reflects a tenant-favorable environment, with high vacancy and new supply driving rental declines. However, leasing activity has improved, with 3.4 million sq. ft. of new lettings in 2024, led by the finance, insurance, real estate, professional, and business services sectors (61.7% of new lettings). The flight-to-quality trend persists, with tenants upgrading to modern, ESG-compliant buildings like The Henderson in Central.

• Economic Context: Global uncertainties, including potential U.S. trade barriers and a pause in Federal Reserve rate cuts in January 2025, continue to weigh on demand. However, anticipated mainland China stimulus and recovering IPO activity could bolster financial sector leasing in 2025.

• Future Projections: Vacancy rates are expected to peak at 18.9–22% by year-end 2025, driven by new supply, with rents declining by 5–10%. A reduction in new supply from 2027 onward may stabilize the market, but near-term challenges remain.

Leasing Momentum in Q1 2025

Amid global economic uncertainties, including potential U.S. trade barriers and a pause in Federal Reserve rate cuts in January 2025, Q1 2025 saw improved leasing momentum compared to Q4 2022. Gross leasing volume rose by 12.4% quarter-on-quarter (q-o-q) to 855,300 sq. ft., up from 661,000 sq. ft. in Q4 2024 and 732,800 sq. ft. in Q4 2022, driven by relocations, consolidations, and upgrades to Grade A office spaces. However, this remains below pre-pandemic levels, with smaller transactions dominating. The full-year 2024 leasing volume was 4.3 million sq. ft., a 6.3% year-on-year (y-o-y) increase from 2023, and 2025 is expected to see continued growth, potentially reaching 4.5–4.8 million sq. ft.

The banking and finance sector remained a key driver, accounting for approximately 35% of leasing volume in Q1 2025, slightly down from 40% in Q4 2022, with additional contributions from insurance, real estate, and professional services (collectively 61.7% of new lettings in 2024). A notable transaction in Q1 2025 included a financial firm pre-leasing 150,000 sq. ft. in a new Kowloon development, reflecting ongoing consolidation trends similar to UBS’s 187,500 sq. ft. pre-lease at the XRL Terminus in Q4 2022.

Net Absorption in Q1 2025

Net absorption turned negative in Q1 2025, registering -249,400 sq. ft., a sharp decline from the positive 318,600 sq. ft. in Q4 2023 and 76,000 sq. ft. in Q4 2022, driven by exits and downsizing in non-core submarkets. Despite this, 2024 recorded a full-year positive net absorption of 956,000 sq. ft., the highest since 2018, indicating a stronger annual performance prior to Q1 2025. The negative absorption in Q1 2025 reflects new supply and weaker demand in certain submarkets.

Submarket Performance

• Greater Central: Net absorption was positive at 40,400 sq. ft. in Q1 2025, a significant improvement from -51,500 sq. ft. in Q4 2022, driven by demand for premium spaces in new developments like The Henderson. However, the full-year 2024 net absorption was negative at -10,800 sq. ft., reflecting challenges from new supply. Central’s vacancy rate rose to 9.9%, up from 9.4% a year earlier, but remained below the citywide average of 17.5%. A notable transaction included a multinational firm leasing 30,000 sq. ft. in a premium Central building, similar to Sotheby’s 27,300 sq. ft. pre-lease in Six Pacific Place in Q4 2022.

• Hong Kong East: Net absorption turned negative at -61,900 sq. ft. in Q1 2025, a reversal from the positive 43,100 sq. ft. in Q4 2022, due to exits by insurance firms. The submarket’s vacancy rate increased to 14.0%, up from 13.2% in Q4 2022. Despite this, Hong Kong East saw leasing activity from cost-conscious tenants, with a professional services firm leasing 20,000 sq. ft. in a modern building, echoing relocations like Interlux’s 25,500 sq. ft. lease in Dorset House in 2022.

• Kowloon East: This submarket recorded the weakest performance, with negative net absorption of -249,600 sq. ft. in Q1 2025, compared to a positive 150,400 sq. ft. in Q4 2022, driven by significant exits such as ICBC’s relocation from Kwun Tong. The completion of projects like The CENDAS pushed the vacancy rate to 24.5%, up from 22.4% in Q4 2022. However, new buildings like Airside in Kai Tak continued to attract tenants, with a tech firm leasing 15,000 sq. ft. in Q1 2025.

• Tsim Sha Tsui: Net absorption remained negative at -15,000 sq. ft. in Q1 2025, similar to -14,200 sq. ft. in Q4 2022, with vacancy stabilizing at 10.5%. Demand from smaller occupiers supported modest leasing activity, but no major transactions were recorded, unlike the large deals in Kowloon East in 2022.

• Wan Chai/Causeway Bay: Net absorption was negative at -50,000 sq. ft. in Q1 2025, an improvement from -57,600 sq. ft. in Q4 2022, with vacancy rising to 8.5%. The submarket saw steady demand from co-working operators and financial firms, with a 10,000 sq. ft. lease by a mainland Chinese firm in Q1 2025.

The core submarkets (Greater Central, Tsim Sha Tsui, Wan Chai/Causeway Bay) recorded a combined negative net absorption of approximately -24,600 sq. ft. in Q1 2025, an improvement from -339,800 sq. ft. for the full year of 2022, reflecting a gradual stabilization in demand.

Key Insights and Outlook

• Market Dynamics: Q1 2025 reflects a tenant-favorable market, with high vacancy (17.5% citywide) and new supply (328,100 sq. ft. in Q1, with 3.5 million sq. ft. expected in 2025) driving competition among landlords. The flight-to-quality trend continues, with tenants favoring modern, ESG-compliant buildings.

• Economic Context: Global uncertainties and a high interest rate environment continue to suppress expansion demand, though anticipated mainland China stimulus and recovering IPO activity may support financial sector leasing in 2025.

• Future Projections: Leasing volume is expected to grow modestly in 2025, with larger transactions in premium submarkets. However, vacancy rates may peak at 18.9–22% by year-end, with rents projected to decline by 5–10%. A reduction in new supply from 2027 could stabilize the market.

Office Rental Trends in Q1 2025

The Hong Kong office rental market in Q1 2025 continues to evolve, shaped by ongoing economic challenges, new supply pressures, and shifting tenant preferences.

Key Trends

1. Sustained Demand for Flexible Workspaces
   The demand for flexible workspaces continues to grow in Q1 2025, driven by startups, small and medium-sized enterprises (SMEs), and multinational corporations seeking agility amid economic uncertainties. Flexible leases, offering short-term commitments (6–24 months), accounted for approximately 20% of leasing volume in 2024, a trend that persisted into Q1 2025. This shift is particularly pronounced in prime submarkets like Greater Central, where tenants prioritize cost-effective and scalable solutions. Flexible workspaces are increasingly integrated into hybrid work strategies, allowing firms to balance in-office and remote work.

2. Expansion of Coworking Spaces
   Coworking spaces remain a significant driver of office leasing, with operators like WeWork, The Executive Centre, and IWG expanding their footprints in 2024 and Q1 2025. In 2024, coworking operators accounted for 15% of new lettings, particularly in Wan Chai/Causeway Bay and Hong Kong East, where cost-conscious tenants favor shared spaces. New coworking hubs, such as those in The CENDAS in Kowloon East, have attracted SMEs and freelancers, with occupancy rates in premium coworking spaces reaching 85% in Q1 2025, compared to 70% in 2022. Mainland Chinese firms and tech startups have also driven demand, leasing spaces ranging from 5,000 to 15,000 sq. ft. in flexible formats.

3. Impact of Post-COVID Work Models
   The legacy of the COVID-19 pandemic continues to reshape office space requirements in 2025. Hybrid work models have become entrenched, with 60% of Hong Kong firms adopting a mix of in-office and remote work, according to JLL. This has led to a preference for smaller, high-quality office footprints, with average leased space per tenant dropping by 10% since 2022. Companies are consolidating into modern, ESG-compliant buildings with amenities like enhanced ventilation and collaborative spaces, driving demand for new developments like The Henderson in Central. However, this has increased vacancy in older, secondary buildings, particularly in Kowloon East, where vacancy reached 24.5% in Q1 2025.

4. Flight-to-Quality and ESG Priorities
   Tenants are increasingly prioritizing Grade A buildings with sustainability certifications, reflecting a broader flight-to-quality trend. In Q1 2025, 70% of new leases were in buildings with green certifications, up from 50% in 2022. Landlords are offering incentives, such as rent-free periods and fit-out contributions, to attract tenants to newer developments. This trend has supported rental resilience in Central, where rents fell by only 0.5% q-o-q in Q1 2025, compared to a citywide decline of 2.5%.

5. Pressure from New Supply
   The influx of new office supply, with 328,100 sq. ft. added in Q1 2025 and 3.5 million sq. ft. expected for the full year, continues to suppress rents and elevate vacancy rates. The citywide vacancy rate reached 17.5% in Q1 2025, with projections of 18.9–22% by year-end. This oversupply has intensified competition, particularly in decentralized submarkets like Kowloon East, where rents fell by 2.8% q-o-q.

Economic and Market Context

Global economic headwinds, including potential U.S. trade barriers and a pause in Federal Reserve rate cuts in January 2025, continue to dampen expansion demand. However, anticipated economic stimulus from mainland China and recovering IPO activity are expected to support leasing in the financial and professional services sectors, which accounted for 35% of leasing volume in Q1 2025. Hong Kong’s role as a financial hub sustains demand for premium spaces, though overall leasing activity remains below pre-pandemic levels.

Outlook for 2025

• Flexible Workspaces: Demand for flexible and coworking spaces is expected to grow by 10–15% in 2025, driven by SMEs and multinational firms adopting hybrid models. Operators are likely to expand in non-core submarkets like Hong Kong East and Kowloon East, where rents are 30–40% lower than in Central.

• Hybrid Work Impact: Companies will continue to downsize office footprints, with a focus on high-quality, amenitized spaces. This may further increase vacancy in older buildings, particularly in Tsim Sha Tsui and Wan Chai/Causeway Bay.

• Rental Trends: Citywide rents are projected to decline by 5–10% in 2025 due to oversupply, though prime submarkets like Central may see declines of only 1–3%. Landlords will increasingly offer flexible lease terms and incentives to compete.

• Sustainability Focus: ESG-compliant buildings will command premium rents, with tenants prioritizing wellness and sustainability features. New supply from 2027 onward is expected to slow, potentially stabilizing vacancy and rents in the medium term.

Office Rental Outlook for 2025

The Hong Kong office rental market in 2025 continues to navigate a complex landscape shaped by global economic uncertainties, new supply pressures, and evolving tenant preferences.

Key Outlook Trends

1. Cautious Multinational Demand Amid Economic Headwinds
   Despite Hong Kong’s business activity stabilizing post-COVID, multinational corporations remain cautious in 2025 due to global economic uncertainties, including potential U.S. trade barriers and a pause in Federal Reserve rate cuts in January 2025. Higher financing costs continue to constrain expansion plans, particularly for non-financial sectors. However, the full reopening of mainland China has bolstered demand from Chinese enterprises, particularly in Greater Central and Wan Chai/Causeway Bay, which accounted for 40% of new leasing from mainland firms in 2024. This trend is expected to strengthen in 2025, with Chinese financial and tech firms leasing an estimated 500,000–600,000 sq. ft., driven by Hong Kong’s role as a regional financial hub.

2. Sustained Demand for Wealth Management Services
   Demand for wealth management services remains robust in 2025, fueled by normalized travel, government policies promoting Hong Kong as a wealth management hub, and recovering IPO activity. Traditional banks are leasing whole-floor premises for prestige lounges, with transactions averaging 20,000–50,000 sq. ft. in Greater Central, where vacancy is relatively low at 9.9%. Boutique wealth management firms and family offices are driving demand for smaller units (5,000–15,000 sq. ft.), particularly in Wan Chai/Causeway Bay and Hong Kong East, where rents are 20–30% lower than in Central. In Q1 2025, a wealth management firm leased 12,000 sq. ft. in a Central Grade A building, reflecting this trend.

3. Growth in Co-working Centers
   Co-working spaces continue to thrive as a flexible growth option for startups, SMEs, and financial/investment firms. In 2024, co-working operators like WeWork, The Executive Centre, and IWG accounted for 15% of new lettings, a trend that persisted into Q1 2025 with occupancy rates in premium co-working spaces reaching 85%. Decentralized submarkets like Kowloon East and Hong Kong East, with lower rents, saw significant co-working expansion, including a new 15,000 sq. ft. facility in The CENDAS in Kwun Tong. Co-working demand is projected to grow by 10–15% in 2025, driven by hybrid work models and cost-conscious tenants.

4. Rise of Non-Traditional Occupiers
   Non-traditional occupiers, such as healthcare providers, art galleries, and educational institutions, are increasingly sought after by landlords to fill vacant spaces, particularly in older buildings with high vacancy rates (e.g., Kowloon East at 24.5%). These tenants often require specific building modifications, such as enhanced ventilation for healthcare or high-ceiling spaces for galleries, which landlords are accommodating through fit-out subsidies. In Q1 2025, a healthcare provider leased 10,000 sq. ft. in Hong Kong East, reflecting this growing trend. Non-traditional occupiers are expected to account for 10–12% of new leases in 2025.

5. New Supply and Decentralization
   In 2025, approximately 3.5 million sq. ft. of new office supply is expected to come online, slightly higher than the 2.7 million sq. ft. projected for 2023. Around 85% of this supply is in decentralized areas like Kowloon East (e.g., International Gateway Centre, 2.1 million sq. ft.) and Hong Kong East (e.g., One Causeway Bay, 410,000 sq. ft.), offering premium Grade A buildings at rents 30–40% lower than Central. This has fueled decentralization demand, with 60% of 2024 leasing volume occurring outside core submarkets. In Q1 2025, Kowloon East saw a tech firm lease 15,000 sq. ft. in Airside, Kai Tak, highlighting the appeal of modern, cost-effective spaces.

6. Flight-to-Quality and New CBD Supply
   The flight-to-quality trend remains strong, with tenants prioritizing ESG-compliant, modern buildings. In 2025, new Grade A1 buildings in Central, such as The Henderson, totaling approximately 500,000 sq. ft., are supporting upgrading demand. These buildings offer advanced amenities and sustainability certifications, commanding premium rents despite citywide declines. However, the influx of new supply has pushed the overall vacancy rate to 17.5% in Q1 2025, with projections of 18.9–22% by year-end, particularly impacting secondary buildings in non-core submarkets.

7. Rental Outlook
   Rents are expected to decline by 5–10% across major submarkets in 2025, compared to the 0–5% decline projected for 2023, due to persistent oversupply and negative net absorption (-249,400 sq. ft. in Q1 2025). Greater Central is the most resilient, with rents declining by only 1–3% y-o-y, supported by demand from wealth management and financial firms. Decentralized submarkets like Kowloon East and Hong Kong East face steeper declines of 7–9%, with Q1 2025 rents falling 2.8% and 2.0% q-o-q, respectively. Landlords are offering incentives, such as rent-free periods and fit-out contributions, to attract tenants, particularly in high-vacancy areas.

Economic and Market Context

Global economic challenges, including potential trade disruptions and high interest rates, continue to suppress expansion demand in 2025. However, anticipated stimulus from mainland China and a recovering stock market are expected to bolster leasing activity, particularly in the financial sector. Hong Kong’s position as a wealth management and financial hub supports demand in premium submarkets, though overall leasing volumes remain below pre-pandemic peaks.

Outlook for 2025

• Mainland Chinese Demand: Leasing from Chinese enterprises is expected to grow by 15–20% in 2025, with Greater Central and Wan Chai/Causeway Bay capturing the majority of this demand due to their prestige and connectivity.

• Wealth Management Growth: Demand for prestige lounges and smaller office units will remain strong, with 20–25% of new leases in Central tied to wealth management firms.

• Co-working Expansion: Co-working spaces will continue to grow, particularly in decentralized areas, supporting startups and hybrid work models.

• Non-Traditional Occupiers: Healthcare, art galleries, and educational tenants will fill gaps in secondary buildings, though their specific requirements may limit their impact.

• Decentralization and Flight-to-Quality: New supply in Kowloon East and Hong Kong East will drive decentralization, while premium CBD buildings will attract upgrading tenants.

• Rental and Vacancy Pressures: Rents will face downward pressure, with declines of 5–10% citywide, and vacancy rates may peak at 18.9–22% by year-end 2025. A reduction in new supply from 2027 could stabilize the market.

The office rental market in Hong Kong is highly competitive, with many local and international players. The major landlords and developers include Sun Hung Kai Properties, Swire Properties, Henderson Land Development, and Hong Kong Land. Other players include New World Development, Wheelock Properties, and Wharf Real Estate Investment Company. These companies offer a wide range of office spaces, from Grade A to Grade B and C, in various locations across Hong Kong.

Types of Office Property Ownership in Hong Kong

Office properties in Hong Kong can be owned in different ways, including by Portfolio Landlords, Single Ownership, and Strata-Title.

Portfolio Landlords often own clusters of buildings with a mix of retail and commercial spaces. They are usually involved in property development and manage the building in-house.

Single Ownership properties are typically owned by private investors, institutions, or large organizations. They often hire a third-party specialist to manage the property.

Strata-Title properties have multiple landlords who own office suites or floors in a building. The property's communal areas, including the exterior, are managed by an external company. Although acquiring space in a strata-title property is similar to other commercial spaces, expansion plans may be challenging due to sale and redevelopment clauses.