(8 January 2025, Hong Kong) 2024 was a challenging year for Hong Kong’s commercial real estate market across different sectors. The slow economic recovery in mainland China, coupled with looming new office supply, high interest rates, and weak retail sales, hindered market recovery. Investors and corporate occupiers remained largely cautious. Investment deal flow and office leasing volume saw marginal year-on-year growth in 2024. Against the global backdrop of lowering interest rates and supported by anticipated economic stimulus in mainland China, balanced by potential heightening in trade barriers, commercial real estate market momentum is expected to improve further in 2025, according to CBRE Hong Kong’s 2025 Market Outlook.
“Hong Kong’s real estate demand is anticipated to improve further in 2025 as financing costs decline. However, this improvement is expected to be modest, primarily reflected in increased transaction volumes. Office and industrial landlords will face challenges from excessive space availability, preventing them from gaining leverage and keeping rents at tenant-favorable levels. Higher tourist traffic is expected to benefit food and beverage businesses, but a structural shift in consumption patterns will hinder retail sales from experiencing a significant increase. Retail leasing demand is likely to remain stable. Despite the downward trend in interest rates, high vacancy rates and anticipated competition from future supply will likely continue to put pressure on capital values in 2025,” said Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong.
• Samuel Lai, Executive Director, Head of Advisory & Transaction Services – Industrial & Logistics, CBRE Hong Kong
• Lawrence Wan, Senior Director, Head of Advisory & Transaction Services – Retail, CBRE Hong Kong
• Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong
• Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong
• Reeves Yan, Executive Director, Head of Capital Markets, CBRE Hong Kong
Review and Commentaries
Grade A Office
- Leasing momentum was seasonally slow in Q4 2024, with gross leasing volume falling by 38% quarter-on-quarter to 661,000 sq. ft. The full-year leasing volume totalled 4.3 million sq. ft., representing growth of 6.3% year-on-year from 2024’s 4.0 million sq. ft.
- Citywide net absorption turned negative at -191,500 sq. ft. in Q4 2024 but reached 956,000 sq. ft. for the full year, its highest since 2018. Greater Central reported -24,900 sq. ft. of net absorption, bringing the full-year figure to -10,800 sq. ft., making it the only submarket with a negative annual figure. Kowloon East was the weakest submarket, with -104,200 sq. ft. of net absorption for the quarter, but was the strongest for the full year, with 231,200 sq. ft.
- The absence of new supply and presence of negative net absorption pushed up the overall vacancy rate by 0.2 percentage point in Q4 2024 to 17.0%. For 2024 as a whole, vacancy climbed a further 0.5 percentage point, or 712,000 sq. ft. to 15.2 million sq. ft.
- The vacancy overhang dragged down rents by 1.7% quarter-on-quarter in Q4 2024, resulting in a 6.3% decline for the full year, accelerating from the -5.5% year-on-year drop in 2023.
Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong: “Despite companies maintaining strict cost controls, the leasing activity for Grade A office space showed a slight improvement in 2024. New developments continued to fuel a flight-to-quality trend, and lower office rents prompted businesses to consider upgrading their spaces. For 2025, China’s expected stimulus economic policies are likely to lead to increased IPO activities in Hong Kong and bolster growth in the financial sector. Office leasing sentiment is projected to improve from 2024, with new leasing volume predicted to grow by 5% year-over-year. However, significant new supply may push vacancy rates higher from the current 17%, and rents are expected to decline by an additional 5% to 10% in 2025.”
| Grade A Office | H1 2024 | H2 2024 | FY 2024 | H1 2024* | H2 2024* | FY 2024 | 2025F |
| Net Absorption (sq. ft.) | Rental % Change | ||||||
| Overall | 1,002,500 | -46,500 | 956,000 | -2.1% | -4.2% | -6.3% | -5%-10% |
| Greater Central | -38,100 | 27,200 | -10,800 | -1.8% | -4.8% | -6.6% | -0%-5% |
| Wanchai, Causeway Bay | 257,700 | -25,900 | 231,800 | -1.6% | -1.9% | -3.4% | -5%-10% |
| Hong Kong East | 58,900 | 55,800 | 114,700 | -4.0% | -5.6% | -9.4% | -5%-10% |
| Tsim Sha Tsui | 54,800 | 65,100 | 119,800 | -3.0% | -2.7% | -5.6% | -5%-10% |
| Kowloon East | 416,600 | -185,400 | 231,200 | -2.8% | -6.6% | -9.2% | -5%-10% |
| Grade A Office | End Dec-2023 | End-Jun 2024 | End-Dec 2024 | 2024 | 2025F |
| Vacancy (%) | New Supply (sq. ft.) | ||||
| Overall | 16.5% | 17.0% | 17.0% | 1.67 mil | 3.15 mil |
| Greater Central | 10.1% | 13.3% | 13.2% | N.A. | N.A. |
| Wan Chai, Causeway Bay | 11.3% | 11.8% | 12.1% | N.A. | N.A. |
| Hong Kong East | 15.5% | 14.9% | 14.4% | N.A. | N.A. |
| Tsim Sha Tsui | 13.7% | 13.2% | 12.6% | N.A. | N.A. |
| Kowloon East | 22.0% | 20.7% | 21.7% | N.A. | N.A. |
Retail
- Changes in consumption patterns continued to negatively impact total retail sales, which fell by 7.1% year-on-year in the first eleven months of 2024. However, an increase in tourist foot traffic helped maintain a relatively stable performance in the food and beverage (F&B) sector, with total restaurant receipts decreasing only slightly by 0.3% year-on-year in the first three quarters of 2024.
- Despite the declines in retail sales and restaurant receipts, discounted rents continued to promote leasing demand. New leasing volume registered 1.1 million sq. ft. for the full year. This reflects a 29% year-on-year decline but is the second highest annual volume on record.
- While the F&B sector remained the most active segment in the retail leasing market, committing 377,000 sq. ft. of space in 2024, fashion retailers also gained significant exposure. Several international brands re-entered or expanded their presence in Hong Kong, leading the sector to lease a total of 97,700 sq. ft. of space in 2024, a 30% y-o-y growth compared to 2023. Additionally, the rising number of mainland Chinese tourists contributed to the expansion of pharmacies in 2024.
- High street shop vacancy rates in the four key shopping districts increased by 1 percentage point in Q4 2024, mainly due to several vacated shops in Tsim Sha Tsui. However, compared to the previous year, the vacancy rate decreased by 1.3 percentage points, reaching 7.8% at the end of December 2024.
- Sustained leasing demand and relatively healthy vacancy underpinned steady growth in high-street shop rents, which grew by 1.0% quarter-on-quarter, the same pace as in Q3 2024. This brought full-year growth to 5.7%.
Lawrence Wan, Senior Director, Head of Advisory & Transaction Services – Retail, CBRE Hong Kong: “Despite the dip in retail sales figures in 2024, sustained levels of new leasing enquires and lower rents ensured a steady stream of leasing transactions. Coupled with an adequate increase in inbound tourism, international brands that had been inactive since the pandemic are now showing renewed interest in core districts. High-street shop rents have on an upward trajectory for two consecutive years. Looking ahead to 2025, Hong Kong’s initiatives to promote an event-driven economy are expected to result in sustained growth in tourist numbers. The F&B sector will particularly benefit from this trend although structural shift in consumption patterns will keep any retail sales growth at modest levels. Most new openings will focus on low-to-mid-range restaurants, up-and-coming fashion brands, and wellness-related retailers. High-street shop vacancy rates are expected to remain relatively low, which will support rental increases of up to 5% in 2025.
| High Street Shops in Core Districts | End-Dec 2023 | End-Jun 2024 | End-Dec 2024 |
| Vacancy (%) | |||
| Overall | 9.1% | 6.8% | 7.8% |
| Central | 11.8% | 9.2% | 6.6% |
| Causeway Bay | 5.3% | 3.9% | 5.3% |
| Tsim Sha Tsui | 8.7% | 8.7% | 14.3% |
| Mong Kok | 9.7% | 6.3% | 6.9% |
| Retail | H1 2024* | H2 2024* | FY 2024 | 2025F | 2024 | 2025F |
| Rental change (%) | New Supply (sq. ft.) | |||||
| High Street Shops | 3.7% | +1.9% | +5.7% | +0-5% | N.A. | N.A. |
| Prime Shopping Malls | 2.3% | +4.2% | +6.6% | +0-5% | 1.1 mil | 1.1 mil |
Industrial
- Slow economic recovery in mainland China and growing uncertainties in global trade demand ensured warehouse occupiers remain cautious in 2024. Full-year new leasing volume contracted 0.5% year-on-year to 3.1 million sq. ft., the lowest since 2014.
- Emerging consumption trends have driven rapid growth among e-commerce operators, who leased a total of 783,400 sq. ft. of space in 2024, representing 26% of the year’s total leasing volume.
- Although warehouse vacancy fell 0.9 percentage point quarter-on-quarter to 7.5%, the repositioning of some space during the year ensured overall vacancy rose by 2.2 percentage point year-on-year, up from 5.3% in Q4 2023.
- Sustained vacancy pressure led warehouse rents to drop by 1.1% quarter-on-quarter, bringing the full-year decline to -4.6% year-on-year, the sharpest annual fall since 2020.
Samuel Lai, Executive Director, Head of Advisory & Transaction Services – Industrial & Logistics, CBRE Hong Kong: “Industrial leasing sentiment, in general, weakened in 2024 against low-base aggregate trade growth. Throughout the year, we witnessed a rapid growth among e-commerce operators, particularly those from mainland China, thanks to the emerging consumption trends. The group contributed 26% of the year’s total leasing volume. As we look ahead to 2025, trade tension escalation is set to weigh on both leasing demand and rental performance. Nevertheless, with China domestic demand accelerating and Hong Kong’s trade growth stabilising, the potential demand for logistics space will improve. Warehouse rents are expected to edge down within a 5% range in 2025.”
| Industrial & Logistics | H1 2024* | H2 2024* | FY 2024 | 2025F |
| Rental Change (%) | ||||
| Warehouse | -2.6% | -2.1% | -4.6% | -0%-5% |
| Flatted Factories | -1.8% | -6.1% | -7.7% | N.A. |
| Industrial/Office | -3.2% | -3.4% | -6.5% | N.A. |
(*) Half-year change
| Industrial & Logistics | End-Dec 2023 | End-Jun 2024 | End-Dec 2024 | 2024 | 2025F |
| Vacancy | New Supply (sq. ft.) | ||||
| Warehouse | 5.3% | 7.9% | 7.5% | 0 | 0 |
Capital Markets
- Hong Kong’s banks responded to the two U.S. interest rate cuts totalling 50bps in Q4 2024 by reducing their Best Lending Rate by 37.5bps to 5.25%-5.50%. However, the one-month HIBOR increased from 4.32% on 30 September to 4.58% on 31 December. For the full year, the one-month HIBOR softened 68 basis points from 5.26% in December 2023.
- Commercial real estate Investment momentum remained sluggish due mainly to the prolonged negative carry situation, with just 23 transactions (deals worth over HK$77 million, excluding pure land or related transactions) completed in Q4 2024. For full year of 2024, only 98 such transactions were recorded, the least in 20 years. These deals totalled HK$41 billion, 1.2% y-o-y increase from 2023.
- Despite the high vacancy and falling rents in the office market, half of 2024’s investment volume was for office assets. Retail assets were also on investors’ radar, accounting for 23% of the capital deployment.
- Financially stressed assets accounted for 64% of this quarter’s investment volume, of which 84% involved office properties. During the period, pressure continued to mount on sellers to fulfil loan covenants.
Reeves Yan, Executive Director, Head of Capital Markets, CBRE Hong Kong: “In 2024, investment momentum remained slow despite interest rate cuts, as financing costs stayed high and negative carry persisted. Looking ahead to 2025, borrowing costs are expected to decrease further; however, the extent of this decline may be less significant than generally anticipated if inflationary pressures in the U.S. resurface. Even with the rate cuts, capital values will continue to face downward pressure in sectors with higher vacancy risks. Distressed assets are likely to remain prevalent, providing valuable opportunities for both end-users and long-term investors. We forecast a modest increase of 5% in investment volume for 2025.”
| Investment | H1 2024 | H2 2024 | FY 2024 |
| Total Investment Volume (HK$ mil.)# | |||
| Overall# | 23,252 | 17,989 | 41,241 |
| Office | 11,918 | 9,415 | 21,333 |
| Retail | 5,644 | 3,776 | 9,420 |
| Industrial & related | 1,891 | 3,070 | 4,961 |
| Hotel & related | 1,540 | 448 | 1,988 |
| Miscellaneous | 2,260 | 1,279 | 3539 |
| Investment | H1 2024* | H2 2024* | FY 2024 | 2025F |
| Capital Value Change (%) | ||||
| Grade A Office (Stratified buildings only) | -6.2% | -12.1% | -17.6% | -3-7% |
| High Street Shops in Core Locations | +1.0% | 0% | +1.0% | -1-5% |
| Warehouse | -2.6% | -2.1% | -4.6% | -3-7% |