Cushman & Wakefield: Hong Kong Grade A office rents fell 2.2% in the first quarter, expected to drop 5-10% for the whole year.

Benoit Real Estate Hong Kong Research Department Director Chen Jinping said that in the first quarter of 2025, the commercial real estate market in Hong Kong showed weakness in the economic headwinds. The traditional slow season, combined with continued caution from businesses, led to a slowdown in leasing and investment activities. The escalation of trade conflicts has increased global market volatility, causing businesses and investors to remain cautious in the near term. It is expected that transaction volumes will remain low until there is improvement in the global economic outlook. The bank pointed out that the momentum of office leasing in the first quarter of 2025 has improved, with a total leasing volume increasing by 12% compared to the previous quarter, reaching 855,300 square feet. Hong Kong's net absorption remained negative for the second consecutive quarter at -249,400 square feet. However, due to an increase in leasing rates by The Henderson, the net absorption in the Central district reached 40,400 square feet. The net absorption in East Hong Kong Island was -61,900 square feet, partly due to the migration of insurance companies and luxury retail businesses. Due to several banks moving out of Kwun Tong, the net absorption in East Kowloon was -249,600 square feet, marking the lowest net absorption in the region for the second consecutive quarter and setting a new quarterly low. The negative net absorption, combined with an addition of 328,100 square feet of new supply, resulted in an overall vacancy rate increase of 0.6 percentage points, reaching a historical high of 17.5%, equivalent to 15.6 million square feet of vacant space. Following a 1.7% decline in the fourth quarter of 2024, the high vacancy rate led to a further 2.2% decline in Grade A office rents. Rents in Central fell by 3.1% for the largest decline since the first quarter of 2024. Rents in East Hong Kong Island also decreased by 4.1%. With a decrease in vacancy rates, rents in Tsim Sha Tsui increased by 0.4% for the quarter. The bank expects annual rental declines of 5-10%. Benoit Real Estate Hong Kong Advisory and Transaction Services Executive Director and Head Evelyn Fung said that the office leasing situation has improved since the fourth quarter of 2024, mainly driven by relocation and consolidation activities. Due to current low rents and more options in the market, more small tenants are upgrading from non-Grade A offices. With some office spaces vacant, the market recorded negative net absorption for two consecutive quarters. Office rents continue to soften, and the vacancy rate in Central continues to improve. As rents remain attractive, more inquiries and inspections were noted in this quarter, especially from tenants seeking office upgrades. It is expected that the office leasing market will continue to favor tenants in the short term.