Grade A office rents on Hong Kong Island to decline by up to 3% in 2025

The market’s absorption capacity will be tested next year.

The overall leasing demand for Grade A offices on Hong Kong Island is currently stagnant, with rents continuing to decline and vacancy rates remaining high.

According to Wendy Lau, Knight Frank Executive Director and Head of Hong Kong Office Strategy & Solutions, this situation reflects the market concerns over economic uncertainty, prompting companies to adopt a more cautious approach in their leasing decisions.

Here’s more from Knight Frank:

While challenges remain, leasing activity in some Grade A offices has shown positive momentum, particularly in newly built prime office spaces, attracting tenants with higher requirements for office amenities. In addition, some landlords have proactively responded to market changes by offering more flexible leasing terms, which are also well-received by tenants. This indicated that appealing amenities, flexible leasing options and favourable terms are essential for landlords to remain competitive in a challenging market.

However, we believe that office rentals are still under pressure. The current high vacancy rate, coupled with an estimated additional supply of 4 million sq ft on Hong Kong Island from 2025-2026, means that the market's absorption capacity will be tested. While these new office buildings may entice some businesses to upgrade or relocate, it will still take time to absorb this additional supply. As such, we expect Grade A office rentals on Hong Kong Island to drop by 0% to 3% in 2025.

Overall, the Hong Kong Island office market will face complex challenges and opportunities in 2025. Changes in corporate demand, increasing market supply, and ongoing economic and political instability will be significant factors affecting rental trends. Landlords and investors will need to closely monitor market dynamics to respond effectively to the changing environment.