Hong Kong commercial property investment drops 42% in Q1

Transaction values were only at HK$4 billion during the quarter.

According to a Savills report, in the first quarter of 2025, as the stock market began to recover and the effects of interest rate cuts diminished, commercial investment sentiment remained subdued.

“Transaction values reached HK$4.0 billion, reflecting a 42% year-over-year decline and constituting only one-tenth of the total transaction volume for 2024,” the report said.

Here’s more from Savills:

A positive development was the decline in distressed sales during Q1 2025, with the ratio of distressed or loss-making transactions falling to 40% and the value amounting to HK$1.8 billion (for deals exceeding HK$50 million). This contrasts with figures from Q4 2024, which reported a ratio of 49% and a transaction value of HK$6.3 billion.

The most notable transaction in 2025 so far involved the sale of nine office floors and select retail units at One Exchange Square to Hong Kong Exchange for HK$6.3 billion in April, designated as their permanent group headquarters. With an estimated floor efficiency of approximately 80%, the average price reached HK$32,000 per square foot, representing a 70% premium over recent stratified Grade A office transactions.

This strategic acquisition also includes significant enhancements, as Hongkong Land has committed to refurbishing a dedicated reception lobby for HKEX, providing direct access to the HKEX Connect Hall. Additionally, HKEX-branded signage will be installed in public-facing areas, including the rooftop, with total costs anticipated to reach up to HK$400 million.

Another significant end user transaction during this period was the Airport Authority's acquisition of the Winland 800 Hotel in Tsing Yi for HK$765 million, equating to HK$960,000 per key, intended for self-use. Additionally, the English Schools Foundation acquired two office floors, totaling 40,380 square feet, for an estimated HK$300 million, or approximately HK$7,429 per square foot, also for self-use.

An end user-cum-investor deal was the sale of Park Aura in Tin Hau (53,000 sq ft) for HK$650 million to the founder of Meitu to utilize part of building for self-use on AI / IT / crypto related businesses. Religious institutions have also seized the opportunities of dipping prices in the commercial sector to secure their permanent premises.

A Buddha religious institution purchased the retail podium on G-2/F of Amber Commercial Building on Morrison Hill Road in Wanchai for a reported HK$108.5 million (a mere HK$5,000 sq ft) for its own use, following another Buddha religious institution’s acquisition of the retail podium of Marble 33 in North Point for HK$250 million for self-use late last year.

The fundamentals of both the office and retail sectors remained weak, with rents declining by 1.6% and 3.6% respectively in Q1 2025. Both markets are grappling with escalating vacancies and significant upcoming supply, making the investment thesis for commercial real estate increasingly unappealing. Consequently, most investors are adopting a cautious stance, seeking initial yields of 6% or higher with stable long-term rental returns.

Looking ahead, interest rate movements and bank lending attitudes will significantly influence the short-term investment market landscape. If the current low HIBOR levels prove sustainable and further rate cuts are anticipated, the occurrence of distressed sales may diminish over the next 2 to 3 months. However, transaction volumes could rise as local investors seek to divest non-distressed commercial assets to reduce their overall leverage in preparation for potential interest rate changes.

Additionally, banks' lending policies will play a crucial role in shaping property investors' willingness to offload commercial assets and the interest of potential investors in entering the commercial real estate market.