(15 January 2025, Hong Kong) Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has released its 2025 Market Outlook report, highlighting diverse performance across various sectors in the commercial property market. The report anticipates positive developments in small-sized office leasing activity, particularly among private banks and fintech companies, as well as a boost in retail investment driven by tourism schemes and the increase in investment demand in educational-related assets.
“Hong Kong’s commercial property market faced significant challenges in 2024. The office and industrial leasing sectors saw a drop in demand due to a sluggish business environment. Although the rate cut cycle initiated in September provided a slight boost to investment sentiment, driven by receivership sales and end-user demand, the recovery remained clouded by uncertainties under the new US administration. Looking forward, the overall property market is anticipated to encounter certain headwinds, including declining Grade A office rents and a polarising retail sector. However, we identify emerging opportunities in the education sector, which includes local tertiary institutions and overseas schools, driving demand in both office and retail markets, “ said Kathy Lee, Head of Research and Retail Consultancy at Colliers Hong Kong.
| Grade A office rent | High-street shop rent | Warehouse rent | Investment volume (HKD) | |
| Q4 2024 (QoQ) | -1.8% | +0.0% | -0.9% | 10.1bn (+3%) |
| 2024 (YoY) | -7.9% | +3.1% | -5.5% | 34.2 bn (–7.6%) |
| 2025 Forecast | -9% | +1.5% | -4% | 40.0 bn (+17%) |
Office
Against the backdrop of a challenging economic landscape and a more cautious and cost-optimisation business sentiment, overall leasing demand remained stable in 2024 registering a positive YoY net take-up of 0.45 mil sq. ft. Grade A transactions are dominated by small-sized new lettings of below 4,000 sq. ft. NFA in 2024, reflecting that businesses remain cautious about expanding their office footprints.
Overall Grade A office rents at end-2024 was HKD 48.7 per sq. ft. (–1.8% QoQ and –7.9% YoY), recording a continuous 23 quarters drop since Q2 2019, and a 40% decline from the record high of HKD 78.7 in office rents in Q1 2019. Rents in submarkets including Central/Admiralty and Kowloon East, experienced a significant drop of 9.2% YoY and 9.4% YoY respectively. Vacancy continues to set new record highs at 16.8% at year-end, representing 13.9 mil sq. ft. of unoccupied office spaces.
In 2025, Colliers anticipates that the tenant-driven market will persist amid an upcoming supply surge. The office leasing market is expected to be dominated by renewals as firms remain cautious about expanding their office space. Additional demand comes from the Financing, Insurance, Professional, and Business Services sectors will be limited, with leases focusing on relocations and consolidations. We project an additional 9% decline in overall Grade A rents in 2025, accompanied by a 1.5 percentage point increase in citywide vacancy rates, as new supply exceeds 3.5 million sq. ft.,” said Fiona Ngan, Head of Occupier Services at Colliers Hong Kong.
Retail
Despite an increase in tourist arrivals by 34% YoY as of Nov 2024, the shift in the consumption pattern of mainland tourists from purchasing luxury goods to experiential and cultural consumption has resulted in an overall retail sales drop of 7.1% YoY over the first eleven months of 2024. The high-street rent remained resilient, registering a rental growth of 3.1% YoY, as brands continue to relocate or expand to prime locations, taking advantage of the existing attractive rents. Vacancy rates across four core districts improved with an overall decrease of 0.8% QoQ, reflecting a positive trend in retail environment.
“We expect a stable performance in the prime core districts, bolstered by a continued recovery in tourism throughout 2025. The year will see a significant influx of new supply, totalling 4.7 million sq. ft., the highest in the past twenty years. Notable developments include 11 Skies in Chap Lap Kok and Kai Tak Sports Park in Kai Tak. Given the evolving preferences of tourists, we advise landlords to prioritize cultural and experiential retail to enhance foot traffic, “said Kathy Lee, Head of Research and Retail Consultancy at Colliers Hong Kong.
Industrial
Overall recovery in industrial market was impeded by the weakened global and local demand, prompting tenants to adopt a cautious approach in expansion and relocation decisions. As such, lease renewals dominated leasing activity in Q4, registering a decline in warehouse rents of 0.9% QoQ and a 5.5% YoY decrease.
“We expect lease renewals will continue dominating in H2 2025 amid the heightened uncertainties in the potential trade barriers. Despite rising vacancy, landlords are less inclined to lower rents due to industrial tenants’ reluctance to relocate; therefore, we expect warehouse rents to decrease by a moderate rate of 4% in 2025,” commented Fiona Ngan, Head of Occupier Services at Colliers Hong Kong.
Capital Markets
The initiation of a rate cut cycle in September 2024, coupled with the relaxation of the loan-to-value (LTV) ratio in October 2024, provided a modest boost to investment sentiment. This led to a slight increase of 3.0% QoQ, reaching HKD 10.1 billion in investment volume for Q4 2024. Notably, assets under receivership or being sold at a loss accounted for 46% of the high-value transactions during this period.
The capital value of office and industrial assets declined by 17% YoY and 8.0% YoY, respectively, in Q4 2024. We anticipate a further decline of 5% to 10% YoY for the office sector in the coming year.
Local end-users were active in the market, targeting commercial spaces for educational use, highlighting the growing demand from the education sector. With the rising demand for off-campus learning centers and student accommodation, investors are increasingly capitalising on opportunities to reposition or acquire commercial properties for educational purposes, leveraging longer lease terms for enhanced cash flow,” commented Thomas Chak, Head of Capital Markets & Investment Services at Colliers Hong Kong.
Residential The enhancement of the New Capital Investment Entrant Scheme, which allows investments in residential properties, will potentially invigorate activity in the luxury residential segment. In terms of the mass residential segment, Kathy Lee, Head of Research and Retail Consultancy at Colliers Hong Kong commented, “Despite a rate cut totalling 100 basis point for 2024, uncertainties persist with potential further cuts in 2025. Coupled with global economic uncertainties and cautious mortgage approvals, we anticipate residential property prices to remain stable in the first half of 2025 given the supply of first-hand residential units remains high, with over 100,000 units either completed or under construction.”
