New supply to weigh on office sector rental levels, while core retail high street rents continue to recover
- Grade A office year-to-date (YTD) net absorption as at mid-November recorded 1 million sq ft, with overall rents down by 5.9% in the same period. Rents are forecast to experience further downwards pressure in the 7%–9% range in 2025.
- Prime retail high street store leasing momentum slightly picked up in 2024, with core high street rents rising by 3%–7%. The retail rental level is expected to further increase by 3%–5% in 2025.
- Driven by the rate cut and relaxation of loan-to-value (LTV) ratio, residential market sentiment has improved, and transaction volume is forecast reach 53,800 cases in 2024. If rate cuts continue in 2025, housing prices and transaction volume are expected to rise by 5% and 3%–5%, respectively.
- Capital market sentiment remains cautious with YTD transaction volume of non-residential big-ticket deals recording just HK$28.5 billion as at December 6. The student housing sector is expected to remain as investors’ key focus in 2025.
HONG KONG SAR – Media OutReach Newswire – 9 December 2024 – Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets 2024 Review and 2025 Outlook press conference. With the U.S. Federal Reserve initiating an interest rate easing cycle, coupled with the relaxation of the LTV ratio for residential properties, as stated in the Hong Kong government’s Policy Address, residential market sentiment has improved. Demand for rental housing assets has also increased, and with the government expanding the non-local student ratio, student accommodation has become a key focus in the city’s capital market. In the Grade A office sector, despite positive net absorption for five consecutive quarters, the high availability rate has kept overall rents in a downward cycle. As for the retail market, active new lettings in prime streets have reduced vacancy rates across core districts. Amid the revival of the “multiple entry” Individual Visit Schemes (IVS), we expect core high street rents to continue to recover in 2025.
Grade A office leasing market: YTD net absorption reached more than 1 million sq ft, the highest since 2019
In Q4 2024, as at mid-November, Grade A office net absorption slowed to 46,000 sq ft, but still representing the fifth consecutive quarter of positive net absorption, bringing YTD net absorption to more than 1 million sq ft, the highest level since 2019. As no major new office projects completed during the quarter, the overall availability rate edged down to 19.2%, marking the second consecutive quarter of decline. New lettings in Q4 were mainly driven by the Banking & Finance sector, accounting for about 33% of total leased area. However, demand from the education sector rose notably to 12% of total leased area, with examples such as the Hong Kong University of Science and Technology and the University of Hong Kong committing to more than 10,000 sq ft of office space in Manulife Financial Centre and Kingston International Centre in Kowloon East, respectively.
Grade A office rents continued to fall in Q4 2024 up to the end of November, by 2.1% q-o-q and 5.9% YTD (Chart 1), to record HK$45.1 per sq ft per month. However, supported by demand from insurance companies, rents in Tsim Sha Tsui fell by just 2.3% YTD, outperforming the overall market average.
Chart 1: Rents of Grade A offices in Hong Kong
Source: Cushman & Wakefield Research
John Siu, Managing Director, Hong Kong, Cushman & Wakefield, said, “The Hong Kong Grade A office market recorded net absorption of 1 million sq ft as at mid-November 2024, while the availability rate has declined for two consecutive quarters, suggesting market sentiment is somewhat improving. Looking ahead in the short-to-medium term, leasing market sentiment in the Grade A office sector will still depend on the overall economic recovery and the performance of the local IPO and stock markets, which could support leasing demand from related and downstream industries. However, as total Grade A office supply is expected to reach 3.5 million sq ft next year, the availability rate is expected to stand at above 20%, and overall Grade A office rents will continue to decline by 7%–9% in 2025.”
Retail leasing market: New leasing activities underpinned the recovery of high street rents, while Causeway Bay witnessed zero vacancy
The change in consumption patterns of tourists and local residents continued to affect the Hong Kong retail market. For the January to October 2024 period, total retail sales in the city recorded HK$312.3 billion, a y-o-y drop of 7.1%. Among the major retail categories, only Medicines and Cosmetics witnessed an increase in sales at 5.7% y-o-y, while sales in the Jewellery & Watches and Fashion & Accessories sectors, formerly very popular with tourists, fell by 15.5% and 10.6% y-o-y, respectively. This indicates a structural change in the consumption habits of tourists and local residents following city’s post-pandemic border reopening.
In Q4 2024, the overall retail high street vacancy rate among core districts fell to 7.6%, as the market continued to see leasing activity from both local and Chinese mainland brands. Across the key submarkets, Causeway Bay recorded a vacancy rate of 0%, for the first time since 2019, suggesting brands are willing to return to the traditional tourist-oriented districts amid the significant rental correction. Vacancy levels in Central, Tsimshatsui and Mongkok remained stable q-o-q, staying at 8.6%, 9.4% and 8.4%, respectively.
With the accelerating leasing momentum, high street retail rents across districts continued to rise steadily in Q4, recording a q-o-q increase ranging from 0.6% to 1.3% (Chart 2), bringing the y-o-y increase to 3% to 7%, with Central and Tsimshatsui both registering a more notable y-o-y increase of 6.7%. Meanwhile, F&B rents dropped in a range of 0.7% to 2.0% q-o-q across districts, due to the increasing operating costs and the northbound travel of Hong Kong consumers.
Chart 2: High street retail rents in prime districts in Hong Kong
Source: Cushman & Wakefield Research
John Siu added, “Throughout 2024, although the number of visitor arrivals continued to recover, the overall retail sentiment in the city has not been able to sustain the growth momentum from last year. In the face of the change in tourists’ and local residents’ consumption patterns, retailers are generally undergoing an adjustment period. While high street leasing activity in core districts has become more active, retailers have remained cautious with their expansion strategies, given the uncertainty surrounding the changing spending habits of consumers. We believe leasing demand in the coming year will mainly be driven by Chinese mainland brands who view Hong Kong as a key stepping stone to promote their brands on the international stage, gradually absorbing vacant space on high streets. Looking ahead to 2025, we believe the series of economic and consumption stimulus measures launched by the Central government will continue to benefit the Hong Kong retail market, including the recent resumption of “multiple-entry” Individual Visit Schemes (IVS) for Shenzhen residents. Coupled with the gradual easing of the strong Hong Kong dollar, we expect total retail sales in Q1 2025 to increase by 3% to 5% y-o-y, with high street retail rents across core districts recording single-digit growth of 3%–5% throughout 2025.”
Residential market: Q4 transactions improved amid rate cut, 2025 home prices to see 5% upside
Hong Kong residential market sentiment improved in Q4, with more investors and potential buyers entering the housing market again, supported by the U.S. interest rate cut in November as well as the relaxation of the LTV ratio announced by the Hong Kong government in the 2024 Policy Address. We forecast that residential transactions in Q4 2024 will reach approximately 15,800 units, up 54% q-o-q and 108% y-o-y from the previous low base, bringing the full-year 2024 annual transaction volume to 53,800 units, climbing 25% from last year’s low (Chart 3). Following the U.S. Federal Reserve’s commencement of the interest rate easing cycle, developers have been actively launching new projects, in turn competing with purchasing power in the secondary market. From January to October, primary market transactions accounted for about 32% of total residential transactions.
Chart 3: Number of residential sale & purchase agreements
Source: Land Registry, Cushman & Wakefield Research
Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield, commented, “Rating and Valuation Department data shows that the housing price index stemmed the prior five months’ drop in October, with the index edging up by 0.6% m-o-m, narrowing the cumulative drop in the first ten months of the year to 6.8%. Meanwhile, our C
Cushman & Wakefield mid-and-small size units price index strengthened slightly by 1% in Q4, as at December 6. Home prices in popular estates across segment also rose. Prices at City One Shatin, representing the small-sized market, rebounded by 13.5% q-o-q. Prices at Taikoo Shing, representing the middle-sized market, increased by 0.7% q-o-q, while Residence Bel-Air in the luxury market moved up by 0.5% q-o-q.”
Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield, added, “The U.S. Federal Reserve has cut interest rates twice since September this year, with major banks in Hong Kong following suit. This has prompted some potential buyers to reassess and compare the performance of banks’ deposit rates versus residential rental yields. In fact, our inquiry volume index in November has risen by around 18% from August’s low following the rate cuts, suggesting that the market generally believes that interest rates have peaked, thereby supporting the return of certain capital allocations to the residential market. Looking ahead to 2025, if interest rates continue to stay on a downward trend, and the stock market remains stable, we expect residential transaction volume will increase by 5%–8% to a level of 56,000–58,000 units, supporting an overall price rebound in the range of 5%.”
Non-residential investment market (deals exceeding HK$100 million): Capital market muted by high interest rates in 2024, rental housing emerging as the market highlight
Amid the high interest rate environment, bank have tightened approvals on commercial mortgage loans. Coupled with a lack of high-yield assets in the market, this shackled overall investment activity which remained sluggish through 2024. For the year to date, the non-residential investment market for deals exceeding HK$100 million has recorded 65 transactions as at December 6, with total transaction volume recording HK$28.5 billion, a drop of 41% y-o-y (Chart 4). In face of the liquidity challenges and heavy interest expenses amid the high interest rate environment, landlords are more willing to offer price discounts on property disposals, thus leading to further correction of property prices and the average deal size. At the same time, this situation has provided windows for cash-rich investors and end-users to bottom-fish. In 2H 2024, local capital accounted for nearly half of total transaction volume by consideration, while Chinese and foreign capital accounted for 34% and 17%, respectively.
Chart 4: Annual non-residential investment transactions (2015-2024*)
Source: Cushman & Wakefield Research
Tom Ko, Executive Director and Head of Capital Markets, Hong Kong, Cushman & Wakefield,
concluded, “In 2024, the office sector accounted for 43% of the total transaction number, the highest across all sectors. This was chiefly due to the significant reduction in asking prices for the asset class, thus attracting end-users acquiring assets for saving future rental expenses. Some investors are also eyeing the capital appreciation potential of new Grade A offices. Meanwhile, the retail sector accounted for around one-third of the total transaction number, with a few transactions of neighborhood malls with relatively stable rental income and shops at prime locations recorded. It is worth noting that in 2024, there were a total of nine hotel and rental housing-related transactions, at around 14% of the total number of deals this year, up from 5% in 2023. Following the renewed influx of expat talent and non-local students, demand for co-living properties, multifamily assets, and student accommodation has continued to rise. Furthermore, the latest Hong Kong Policy Address encourages the private sector to convert hotels and commercial buildings into student housing, and we believe this sector will continue to be sought-after in the coming year, particularly for those assets in prime locations with conversion potential. Looking ahead, despite the rate cut in September 2024, commercial mortgage rates are still higher than the property yields for most commercial sectors. We expect total investment volume to pick up by around 10% to HK$ 30billion in 2025.”
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(From left to right) Tom Ko, Executive Director and Head of Capital Markets, Hong Kong, Cushman & Wakefield; John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield; Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield and Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield.
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About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit 
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