Kowloon office market to remain soft in 2025: Knight Frank

Older buildings are expected to keep facing tough competition.

Unlike Hong Kong Island, leasing activity in Kowloon remained quiet in December. According to a Knight Frank report, new lease transactions dropped by 15% on a monthly basis.

Most of the new letting cases were from small and medium enterprises for spaces of 3,000 sq ft or below. Leasing activity from electronics companies was more active during the month but still not enough to drive any sentiment improvement.

Here’s more from Knight Frank:

As tenants remain cost-conscious, the majority of leasing activity was concentrated in cost-effective districts like Kowloon East and Cheung Sha Wan, primarily in newer office buildings such as The Millennity in Kwun Tong and 83 King Lam Street in Cheung Sha Wan.

These buildings offered competitive rental rates compared to other areas, and quality specifications that drew most market attention. The latter concluded a 65,948 sq.ft. transaction with Ralph Lauren last month, one of the largest new letting cases in Kowloon of the year.

Ralph Lauren was previously using an old industrial building, and the upgrade to 83 King Lam Street indicates how tenants are still chasing higher cost effectiveness. New office buildings not only come with modern amenities but also offer competitive rents making them attractive options for businesses looking to upgrade their office space.

Looking ahead, the Kowloon office market is expected to remain soft in 2025, with a focus on maintaining competitiveness through various adjustments and incentives. New Grade A buildings are expected to remain popular and the trend of upgrading office space is expected to continue amid low rents.

Older buildings and non-Grade A buildings will inevitably keep facing much competition, and rent levels are likely to keep adjusting downward. With these dynamics and a prevailing weak economic environment, we anticipate a downward adjustment of 2% to 4% in rental forecasts.