Knight Frank: Hong Kong home prices expected to rise 8-10% year-on-year in 2026

Knight Frank has released its latest "Hong Kong Quarterly Market Report," which shows continued improvement in some property market segments, with the leasing market's tightening supply of Grade A office space, active residential transactions, and stronger visitor spending providing support to the market. The firm expects the residential market to remain stable through year-end, with transaction volume growth continuing to outpace price growth, and full-year home prices forecast to rise 8-10% year-on-year. Hong Kong's Grade A office market continued to stabilize in the third quarter, supported by a renewed pickup in mainland Chinese enterprises listing in Hong Kong and continued inflows of mainland capital. Occupancy at Two IFC and One IFC is nearing saturation. Central's super Grade A office segment performed especially strongly, with rents in September up 27.7% year-on-year, while the vacancy rate fell sharply from 14.5% at the start of the year to 6.9% by the end of September. New office supply over the next four years will be limited, and rents are expected to maintain their upward trend, prompting tenants to plan earlier and begin considering lease renewals or relocations 12-18 months before lease expiry. As available office space in Central becomes increasingly tight, corporates are gradually considering other business districts. The vacancy rate in Admiralty is now as low as 4%, and Knight Frank expects demand to extend to West Kowloon and Causeway Bay, both of which will see new supply in the future; Quarry Bay is also expected to benefit, given its relatively attractive office rents and higher vacancy rate. In the Kowloon market, about 90% of the top ten office leasing transactions by floor area involved relocation cases, up significantly from about 55% the previous month. Average transaction size rose to about 5,400 sq ft in the third quarter, exceeding about 4,000 sq ft in the first half of 2026. Tenants are seizing the current market window to expand, upgrade, and redeploy office space to meet business needs before rents rise. Crystal Tower in Kwun Tong was completed during the quarter, bringing new Grade A office supply to the market. As leasing by major tenants is still pending, the new floor area is expected to keep vacancy rates in Kowloon East under pressure. In the residential property market, Knight Frank noted that Hong Kong's residential market has continued to recover since bottoming out in April 2025, with home prices rebounding 12% from the low. However, with changing interest rate expectations, buyer sentiment has turned more cautious and a wait-and-see atmosphere has increased. Actual mortgage costs have not yet risen significantly, and developers continue to offer attractive mortgage incentives to support primary market demand. Quality, location, and pricing remain the main differentiating factors in the market. The firm expects the residential market to remain stable through year-end, with transaction volume growth continuing to outpace price growth. Full-year home prices are forecast to rise 8-10% year-on-year, primary transaction volume could reach about 20,000 units, and overall residential transaction volume is expected to remain at about 1,500 units per month in the coming months. The residential leasing market remains strong, with demand continuing to exceed supply. Limited listings have driven rents higher, particularly in the luxury market; leasing demand from expatriates, multinational corporate employees, and mainland families also remains active. Family tenants continue to prefer larger units and value proximity to reputable local and international schools. Many mainland tenants choose to rent first when they first arrive in Hong Kong and consider buying later after becoming familiar with the market. Luxury homes with monthly rents of HK$120,000-150,000 remain sought after in the market. Residential leasing demand also comes from local technology professionals, including some who have benefited from increased liquidity arising from new stock listing activity. Knight Frank said that in the first three quarters of 2026, momentum in Hong Kong's commercial real estate investment market continued to strengthen. Offices were the largest sector by transaction value, accounting for 53% of total transaction value; the hotel market was the fastest-growing asset class. Year-to-date hotel transaction value reached HK$11.3 billion, nearly double the HK$6.3 billion for all of 2025, the most outstanding growth among all real estate asset classes. Private capital continues to be an important driving force in the market, with family offices and ultra-high-net-worth investors accounting for 16% of total transaction value across property types in 2026 to date, and as much as 24% in the hotel and student housing markets. As of the end of 2025, Hong Kong had 3,384 single-family offices, and the government is actively promoting further establishment of family offices in Hong Kong. At the same time, the government is advancing on all fronts to build Hong Kong into an international gold trading center, and private capital in Hong Kong is expected to continue providing important momentum to the real estate investment market.