Knight Frank’s latest Hong Kong Quarterly Report highlights the varied performance of the property market.
Co-working space expansion marked as a leasing highlight in Hong Kong Island’s Grade A office market, while leasing activity in Kowloon stabilised as relocation demand from both large corporations and SMEs eased from earlier levels. The residential market remained resilient, supported by strong demand and active new project launches. Meanwhile, the retail sector continued to benefit from the recovery in tourism and consumer spending, while accelerating its transformation amid the rise of omnichannel strategies, contributing to an overall improvement in market sentiment.
Grade-A Office Market
Hong Kong
Hong Kong Island’s office market continued to recover in 1H 2026, recording its first half-year rental growth since 2H 2021, with average rents rising 5.5% year-on-year (YoY). Strong leasing activity drove net absorption to 861,000 sq ft, led by Central, where rents surged 10.8% YoY.
Co-working demand drove major leasing activities in the first half of 2026, accounting for more than 200,000 sq ft of new lettings, particularly in Central and Causeway Bay, as start-ups and Chinese mainland firms increasingly sought flexible office solutions in Hong Kong.
Looking ahead, demand for premium Grade-A offices is expected to remain robust, benefiting developments such as Cheung Kong Centre II, Takshing House and Central Crossing.
Kowloon
Kowloon East landlords continued to offer flexible renewal terms to retain occupiers, leading to an increase in lease renewals during Q2, while relocation activity among both large corporates and SMEs moderated.
West Kowloon and Kowloon Central were the most active leasing submarkets, with limited availability remaining in prime buildings such as The Gateway. Notable transactions included Manulife’s renewal of more than 300,000 sq ft in Kwun Tong and Levi Strauss’ relocation to The Quayside.
With no major Grade A office completions expected in 2026, vacancy rates are anticipated to improve further, while continued expansion by banking, finance, insurance and Chinese mainland occupiers is expected to support a gradual market recovery.
Residential
Hong Kong’s residential market remained resilient in the first half of 2026, supported by strong demand, active new project launches and optimistic market sentiment. Transaction volumes increased significantly in Q2, with first-hand sales leading the growth as buyers responded positively to new launches and developers’ proactive sales strategies. Mass residential prices continued to rise, although growth is expected to moderate as sentiment normalises following the heightened activity in the first half of 2026.
The luxury residential sector also remained active, with a notable increase in high-value transactions, reflecting sustained interest from affluent buyers. Meanwhile, residential rents continued to trend upward, supported by demand from Chinese Mainland professionals. Traditional luxury residential districts also remained firm, underpinned by landlords’ positive expectations. As the peak leasing season begins, strong demand is expected for strategically located urban new developments and properties near university clusters.
Looking ahead, abundant new supply and upcoming project launches are expected to create a more balanced market environment. While developers are likely to adopt a more measured sales approach, well-located and competitively priced projects are expected to continue outperforming the broader market.
Retail
Hong Kong’s retail market continued to recover, supported by rising tourist arrivals, stronger consumer spending and resilient luxury sales. Luxury categories continued to outperform, benefiting from increased mainland Chinese visitor spending and a stronger renminbi. Visitor arrivals from Chinese mainland China continued to grow, providing further support to the city’s retail sector.
The retail landscape is increasingly shaped by omnichannel strategies, with e-commerce players expanding into physical retail. JD.com’s launch of its first overseas JD MALL in Hong Kong underscores the growing importance of experiential retail and the convergence of online and offline shopping channels.
Leasing sentiment in the prime retail sector also improved, with recent street-shop transactions indicating stronger demand and signs of rental growth in prime locations. The increasing local penetration of e-commerce and cross-border spending will continue to drag the mass retail and thus impact the mid-tier and neighbourhood malls. Landlords will need to continue refining their tenant mix and strengthening experiential consumption elements to sustain the competitiveness of their retail assets.
