• Home prices and rents continue to diverge

    27 February 2024

    (27 February 2024, Hong Kong) Knight Frank’s latest Hong Kong Monthly Report highlights the property market’s performance across different property sectors. In the Grade-A Office market, with weak business sentiment and high vacancy rates, landlords are prioritising occupancy rather than rent in the short term. Office demand is expected to stabilise in the first half of 2024, followed by an increase in transaction volume in the second half. In the residential market, home prices have been on a downward trajectory, hitting a seven-year low. We maintain our view that the government should remove the remaining property cooling measures to reverse the current downturn and stimulate the market. As for the retail market, local residents’ cross-border consumption habits continue to pose a significant challenge. While retail sales are expected to improve, it’s unlikely they will reach pre-pandemic levels in the near future.

    Grade-A Office

    Hong Kong Island

    In January, the overall average Grade A office rent in Hong Kong Island continued to fall. Most of the submarkets on Hong Kong Island experienced a rental decline. Central recorded a larger than average drop of 1.5% MoM or 10.8% YoY. There was increasing demand from Chinese mainland companies, but most were looking for small to medium-size office space.
    In the short term, most landlords are expected to focus on occupancy over rent, given the weak business sentiment and high vacancy rates. We expect landlords to offer more innovative and flexible leasing packages and scale up building level amenities to retain and attract tenants. Buildings that offer quality, flexibility and attractive amenities will outperform the market. We expect office demand to stabilise in the first half of 2024 and an upswing in transaction volume in the second half of the year.


    During the month, leasing momentum was hobbled by stagnant demand. Leasing activity remained active in Kowloon East, with electronics and engineering companies as the main demand drivers.

    Given the soft market sentiment, tenants tended to be more cautious in making leasing decisions. Instead of considering relocation options, they were more inclined to renew their leases at the attractive rents offered by landlords. Therefore, renewal cases dominated the leasing market during the month.

    The market was buoyed by a number of positive factors, including growing demand from the government and infrastructure-related organisations, the setting up of new enterprises in the Greater Bay Area, the flight-to-quality trend, and cost optimisation. A gradual improvement is anticipated in the Kowloon office market after Chinese New Year.


    Residential prices demonstrated a downward trajectory over the past year, reaching the lowest point in seven years. Overall prices dropped by another 1.4% MoM in December last year. Over the full year, prices plummeted by 6.8%, according to the Rating and Valuation Department.

    The price decline narrowed in December. The improved volume was attributed mainly to the US Federal Open Market Committee (FOMC) meeting in mid-December. The meeting marked the third consecutive pause since July 2023 and hinted at three rate cuts by a total of 0.75% in 2024.

    Rental market trends, in contrast, continued to climb on rising demand. Overall rental rates surged by 6.6% YoY, the highest in four years. Throughout the year, the influx of overseas and mainland talent attracted by the Government’s various talent schemes have been a major demand catalyst in the leasing market.

    The luxury segment continued to exhibit resilience, with several big-ticket transactions recorded throughout the month. The market is anticipating more supportive measures will be introduced in the coming budget. We maintain our view that the government should scrap the remaining property cooling measures, to reverse the current downturn and stimulate the market.


    Despite the traditional peak retail season, Hong Kong’s retail market sentiment did not improve in December 2023. Total retail sales value in December increased by 7.8% YoY to HK$36.3 billion. But the growth in total retail sales was weaker than expected.

    In contrast, the food and beverage sector saw some rays of sunshine. The total value of restaurant receipts in Q4 2023 increased by 7.5% YoY. Bars and miscellaneous eating and drinking places outperformed other food and beverage segments, with receipt values increasing by 19.7% and 13.5%, respectively.

    On the leasing front, we observed increased market activity in core shopping districts. More Chinese F&B operators debuted in the local retail scene. Hermès, a French luxury goods company, planned to open its eighth branch in Lee Gardens, Causeway Bay. This prominent deal indicates that the luxury brand has an optimistic outlook for the retail market and tourism in Hong Kong.

    As for the investment market, some property owners have grudgingly reduced the asking price of retail podiums substantially to offload them from their loan-to-rent ratio. This represents an opportunity for investors who are looking to purchase retail properties at discounted prices.Looking ahead, we expect retailers to be prudent in extending their presence in the market. Cross-border consumption habits of local residents remain a formidable challenge for the local retail sector. We expect retail sales to continue to improve, but they are unlikely to return to pre-pandemic level in the short term.


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