In the first quarter of 2025, Hong Kong's real estate market encountered a series of challenges as rents and capital values fell across multiple sectors. Despite these difficulties, leasing activities remained robust in office, retail, and residential areas, according to JLL’s latest report. A cautious market sentiment prevailed among investors who adopted a wait-and-see stance due to uncertainties surrounding trade tensions between the U.S. and China, as well as fluctuations in interest rates. While macroeconomic factors continued to evolve, analysts observed growing pressure in certain commercial segments.
The office sector experienced negative net absorption of 143,400 square feet during this period, primarily attributed to previously vacated spaces re-entering the market. Office vacancies climbed to 13.7%, with Kowloon East witnessing the most significant rise from 18.6% to 21.3%. However, core districts like Central and Tsimshatsui showed slight improvements in occupancy levels. Grade A office rents decreased by 1.3% compared to the previous quarter, with Hong Kong East experiencing the steepest decline at 3.4%. Experts anticipate further drops in office rents throughout the year, citing ongoing supply pressures.
Meanwhile, retail leasing demonstrated resilience, particularly benefiting mass-market retailers, fitness operators, and securities firms. To maintain tenant interest, landlords provided discounts, resulting in overall rental declines. High street shop rents reduced by 0.8%, while prime and premium prime shopping center rents softened by 0.3% and 0.2%, respectively. Vacancy rates edged upward, reaching 10.6% for high street shops and 9.2% for prime centers. The outlook for both high street and prime retail remains subdued, with anticipated rent decreases of up to 5% over the year.
The residential market exhibited mixed trends, with mass-market home prices dropping slightly by 0.1%. Conversely, luxury rents increased by 0.8% due to steady leasing demand supported by an influx of foreign professionals. Approximately 14,200 talents and 9,300 dependents entered Hong Kong through government talent initiatives within the first two months of the year. Although sales volume declined by 19.2% compared to the previous quarter, it still exceeded last year's figures by 24.1%. Policy adjustments, such as raising the stamp duty exemption threshold, are expected to stimulate entry-level market activity.
In the industrial segment, the prime warehouse vacancy rate hit a record high of 8.9%, accompanied by a 0.9% drop in both capital values and rents. This segment faces structural changes in global trade, exacerbated by weakened import-export activity linked to US-China tensions and a slowing economy. With over 60 million square feet of prime warehouse space in Hong Kong, more than 5 million square feet remain unoccupied. Industry experts caution that transforming Hong Kong’s logistics and industrial foundation will require time and confront substantial obstacles.
Amidst these challenges, Hong Kong's real estate landscape reflects a complex interplay of declining values, evolving market dynamics, and strategic policy interventions. While some sectors show signs of resilience, others grapple with persistent headwinds, underscoring the need for adaptive strategies to navigate current uncertainties.