| [28 February 2025] Hong Kong home prices expected to bottom out in early 2025 Knight Frank’s latest Hong Kong Monthly Report highlights varied property market performance. The finance sector in the Hong Kong office market showed optimism, some luxury goods companies were also active with consolidation and upgrading, but the vacancy rate for Grade A office spaces is expected to remain high due to new supply. The Kowloon office market exhibited subdued activity in January 2025, with most activity focused on lease renewals, and demand is expected to remain weak. Hong Kong residential home prices declined in 2024, but prices are expected to recover in 2025. The retail market saw a drop in total retail sales in 2024. However, with the opening of the Kai Tak Sports Park, which will boost both local and tourist consumption, retail sales are expected to stabilise in 2025. Grade A Office Hong Kong Island At the beginning of the year, the activity level in Hong Kong’s office market was high, despite the absence of major transactions thus far. In January, the office market witnessed continued optimism within the finance sector, with hedge funds leading the charge. We have observed an uptick in leasing inquiries and inspections in January. Some luxury goods companies were also active with consolidation and upgrading projects, leveraging the market downturn to negotiate favourable lease terms and upgrading their office spaces. Looking ahead, the vacancy rate for Grade A office spaces is expected to remain high due to the continued influx of new supply. Despite these challenges, there are encouraging signs of improvement in leasing activities, particularly within the finance sector. The trend toward higher-quality office spaces is likely to continue as businesses consolidate. Kowloon The Kowloon office market exhibited subdued activity in January 2025, largely due to the festive season. Although new lease transactions rose by 30% MoM, this was primarily due to a low base from December. Most market activity focused on lease renewals, especially in Kowloon East. The lack of notable new lettings suggests many businesses postponed relocation decisions during the festive season. Some larger deals, exceeding 10,000 sq ft, are still in negotiations. On the other hand, some companies are opting to renew existing leases, often downsizing their spaces by 10% to 15% to align with current operational needs. This trend is particularly evident in the manufacturing, trading, and sourcing sectors as businesses optimise workflows and reduce staff requirements. Overall, we expect demand in the Kowloon office market to remain weak in the near term. Nonetheless, with projections of less than 1 million sq ft of new office supply within 2025, it may lead to a faster net take-up rate, suggesting rents are unlikely to decline significantly in 2025. Residential Hong Kong home prices halted their rebound trend over the last quarter of 2024, declining by 0.65% MoM in December, recording a total annual decline of 7.1%, according to the Rating and Valuation Department. Developers have aggressively put more new projects on the market at discounted prices, capitalising on the improving sentiment. As we entered a new year, a number of first-hand projects recorded satisfactory sales. The luxury residential segment remains stable. One of the most notable transactions in the month occurred at The Peak, where a 5,062-sq-ft house at 77 Peak Road sold for HK$501 million (or HK$98,652 per sq ft). The luxury leasing market also shows stable movement. Notably, affluent individuals from the mainland could afford premium accommodation with monthly rents up to HK$200,000. In the short term, property prices are expected to remain at their current low levels. As interest rates and inventory levels gradually decrease, coupled with an improved stock market stimulating market sentiment, we expect property prices to begin to recover noticeably in the second half of the year. We forecast an overall annual increase of up to 5% for 2025. Retail The retail market continues to show weakness, with total retail sales dropping by 7.3% in 2024 compared to the previous year. The unfavourable macroeconomic environment in 2024, the surge in northbound travel of locals, and the decline in tourist spending were different drivers behind this disappointing sales drop. Among the various types of retail outlet, the substantial declines in consumer durable goods and jewellery, watches, clocks, and valuable gifts categories highlight the adverse impact on consumer appetite amid challenging economic conditions. Despite a 14.1% YoY drop in retail sales of bread, pastry, confectionery, and biscuits in 2024, certain pastry and cookie retailers have successfully navigated the challenges. With the opening of the Kai Tak Sports Park and related mega sports and entertainment events to boost both local and tourist consumption, the government estimates the project to attract over 840,000 visitors and bring over HK$3.3 billion spending in Hong Kong. Total retail sales are expected to stabalise in 2025. Although the retail and macroeconomic landscape has not fully recovered, opportunities remain for SMEs to make their market and stimulate market growth. |
Knight Frank: Hong Kong home prices expected to bottom out
28 February 2025
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