Why investing in Hong Kong’s commercial real estate is ‘unappealing’

Find out why most investors are now being more cautious.

In a recent report, Savills said the intensification of US-China trade tensions, highlighted by reciprocal tariffs reaching up to 145% on Chinese goods (including those from Hong Kong and Macau) in April 2025, has exacerbated economic uncertainties in Hong Kong.

“While these tariffs primarily target the trade in goods, they have indirectly undermined investor confidence in the commercial property market. Hong Kong’s status as a global financial hub and its dependence on cross-border trade render it particularly susceptible to disruptions in US-China relations,” the report said.

Here’s more from Savills:

In contrast, the Hong Kong property market has exhibited some positive developments in Q1 2025. The rebound in the stock market, with the Hang Seng Index rising by 15%, has restored a degree of confidence, particularly in the residential sector, where 3,897 primary units were sold, marking a notable 36% year-on-year increase.

However, this positive momentum has not extended to the commercial market. Many property owners, including mid-cap developers and local investors, continue to operate with high leverage, prompting a desire to liquidate their commercial portfolios. The fundamentals of both the office and retail sectors remain 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.

The en-bloc market has been largely characterized by end-user transactions, with only HK$1.5 billion in commercial properties changing hands in Q1. The most notable transaction was the acquisition of the Winland 800 Hotel in Tsing Yi by the Airport Authority for HK$765 million (HK$960,000 per key) for self-use.

In the stratified market, the English Schools Foundation purchased two office floors totaling 40,380 sq ft for a reported HK$300 million (approximately HK$7,429 per sq ft), also for self-use. Additionally, a Mainland buyer acquired the 39th floor of the Far East Finance Centre (10,800 sq ft) for HK$200 million (HK$18,518 per sq ft). Both transactions reflected price reductions of 60% to 70% compared to their peaks in 2018, and similar discounts are expected for properties marketed in the coming months.

Conversely, luxury properties have proven more marketable due to their scarcity and the continued interest from new local and Mainland buyers seeking reasonable prices. The development site at 68-70 Chung Hom Kok Road, with a permissible gross floor area of 10,800 sq ft, sold for HK$220 million, reflecting an average value of HK$20,370 per square foot, representing a decline of around 40% from its previous asking price. 

Property investors facing ongoing pressure from banks to reduce leverage may consider offloading luxury residential holdings to replenish cash more rapidly.