CBRE: Hong Kong's Grade A office rents fell 2.2% in the first quarter, and rents are expected to drop 5-10% for the whole year

The Zhitong Finance App learned that Chan Kam Ping, head of CBRE Hong Kong's research department, said that in the first quarter of 2025, the Hong Kong commercial real estate market showed weak performance amid economic headwinds. The traditional off-season combined with the continued wait-and-see attitude of enterprises led to a slowdown in both leasing and investment activities. The intensification of trade conflicts has caused global markets to fluctuate, causing companies and investors to remain cautious recently. Trading volume is expected to remain low until the global economic outlook improves.

According to the bank, the trend of office leasing improved in the first quarter of 2025, with total leasing volume up 12% from the previous quarter to 855,300 square feet. Hong Kong's net absorption volume was negative for the second consecutive quarter, reaching -249,400 square feet. However, due to the increase in The Henderson rental rate, the net absorption of the Greater Central Area reached 40,400 square feet. The net absorption volume of Hong Kong East is -61,900 square feet, partly due to relocation of insurance companies and luxury retailers. As several banks moved out of Kwun Tong, the net absorption volume of Kowloon East was -249,600 square feet, the lowest net absorption volume of each district for the second consecutive quarter, and also a new quarterly low for Kowloon East.

Negative net absorption, combined with 3281,000 square feet of additional supply, led to an overall vacancy rate increase of 0.6 percentage points, reaching a record 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, high vacancy rates led to a further 2.2% quarterly decline in grade A office rents. Central rents fell 3.1% quarterly, the biggest drop since the first quarter of 2024. Rental performance in Hong Kong East fell 4.1% from quarter to quarter. Tsim Sha Tsui rents increased slightly by 0.4% on a quarterly basis due to a reduction in the vacancy rate. The bank expects annual rents to drop by 5-10% year-on-year.

Margaret Fung, executive director and head of CBRE Hong Kong advisory and transaction services, said that the office leasing situation has improved since the fourth quarter of 2024, mainly driven by relocation and integration activities. Due to current lower rents and more choices in the market, more small tenants have decided to upgrade from non-Grade A office buildings. As some office space became vacant, the market recorded negative net absorption for two consecutive quarters. Office rents continue to weaken, and Central's vacancy rate continues to improve. As rents remain attractive, more inquiries and inspections were noted during the quarter, particularly from tenants seeking office upgrades. The office rental market is expected to continue to benefit tenants in the short term.