- Grade A office year-to-date (YTD) net absorption as at mid-November recorded 1 million sq ft, with overall rents down by 5.9% in the same period. Rents are forecast to experience further downwards pressure in the 7%–9% range in 2025.
- Prime retail high street store leasing momentum slightly picked up in 2024, with core high street rents rising by 3%–7%. The retail rental level is expected to further increase by 3%–5% in 2025.
- Driven by the rate cut and relaxation of loan-to-value (LTV) ratio, residential market sentiment has improved, and transaction volume is forecast reach 53,800 cases in 2024. If rate cuts continue in 2025, housing prices and transaction volume are expected to rise by 5% and 3%–5%, respectively.
- Capital market sentiment remains cautious with YTD transaction volume of non-residential big-ticket deals recording just HK$28.5 billion as at December 6. The student housing sector is expected to remain as investors’ key focus in 2025.
With the U.S. Federal Reserve initiating an interest rate easing cycle, coupled with the relaxation of the LTV ratio for residential properties, as stated in the Hong Kong government’s Policy Address, residential market sentiment has improved. Demand for rental housing assets has also increased, and with the government expanding the non-local student ratio, student accommodation has become a key focus in the city’s capital market. In the Grade A office sector, despite positive net absorption for five consecutive quarters, the high availability rate has kept overall rents in a downward cycle. As for the retail market, active new lettings in prime streets have reduced vacancy rates across core districts. Amid the revival of the “multiple entry” Individual Visit Schemes (IVS), we expect core high street rents to continue to recover in 2025.
Office Market Key Takeaways
- Annual net absorption improved in 2024 to reach 1 million sq ft, the highest level since 2019, while availability rate further declined to 19.2%.
- The banking & finance sector remained the major source of demand, but education sector demand is also rising.
- In 2025, with 3.5 million sq ft of new office space entering the market, the overall availability rate is expected to potentially reach 22%.
- Rents declined by 5.9% in the first 11 months of 2024, and amid the supply boom ahead, we forecast rents will further decline by 7%–9% in 2025.
- In the near-to mid-term, office market sentiment will be subject to the recovery of IPO activities and the rebound of the economy.
Retail Market Key Takeaways
- Retail sales continued to slow in the January to October period, impacted by the structural change in the consumption habits of local residents and tourists.
- Leasing demand in prime location remained relatively resilient, with core high street retail rents recovering in the range of 3% to 7% in 2024.
- Vacancy rates across districts have been declining through the year, with Causeway Bay now standing at 0%.
- Chinese mainland brands are to become the key driver of leasing demand in the near-term, filling vacant spaces on high streets and in malls.
- With the recent resumption of multiple entry Individual Visit Schemes for Shenzhen residents, we expect visitor arrivals to rise, with core high street retail rents to pick up in a range of 3% to 5% in 2025.
Residential Market Key Takeaways
- Residential transactions picked up in Q4 following the interest rate easing. We expect the 2024 total residential S&Ps number to reach 53,800 units, up 25% annually.
- According to Cushman & Wakefield data, as at early December, overall mass market home prices were up around 1% q-o-q, and down approximately 7% from the 2023 level.
- In 2025 we expect the ongoing rate cut cycle, and the ongoing influx of expats and non-local students, to bring support to housing market demand.
- 2025 transaction numbers are expected to rise in a range of 5% to 8% y-o-y to approximately 56,000 to 58,000 units.
- 2025 home prices are expected to pick up in a range of 5% annually, assuming the rate cut cycle continues.
Investment Market Key Takeaways
- Investment market sentiment remained cautious amid the high interest rate environment. Total consideration stands at HK$28.5 billion for the year-to-date as at December 6, 2024, down 41% from the full-year 2023 figure.
- Some landlords have been more willing to offer greater discounts on asking prices, or to sell at a loss, leading to price correction across sectors.
- Office assets dominated investment transactions, supported by bargain hunting activities by end-users and cash-rich investors.
- Rental housing assets are likely to be sought after, driven by strong market fundamentals and government policy.
- 2025 total investment volume is forecast to pick up at around 10% to reach approximately HK$30 billion, mainly driven by local and Chinese mainland capital.
