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Hong Kong's Grade-A office market in Central is showing signs of stabilisation after nearly seven years of decline, supported by strong capital market activity and rising demand from financial and Chinese firms. A surge in IPO fundraising over the past year has driven both leasing and investment activity in prime office towers. While rents and prices have begun to improve, the recovery remains limited to select high-quality assets. Oversupply in other districts continues to weigh on the broader market, even as vacancy rates in Central gradually improve and investor confidence returns.
Hong Kong's Grade-A office market in its Central financial district is showing early signs of recovery after a prolonged downturn that lasted nearly seven years. The improvement is being supported by strong capital market activity, which has increased demand from mainland Chinese companies and multinational financial institutions, according to property consultants. Advertisement
The shift comes after a strong IPO cycle in the past year, during which funds raised in Hong Kong rose sharply by 231 per cent to USD 37 billion. A strong pipeline of listings continues to support market sentiment, with increased activity now extending beyond financial markets into premium office spaces.
Industry experts indicated that companies are increasingly setting up or expanding their presence in the city to stay close to capital market opportunities. This trend has directly contributed to rising demand for office space in Central, particularly in high-quality developments.
Recent transactions reflect this renewed interest. Chinese e-commerce company JD.com acquired a 50 per cent stake in a Central office tower for around USD 450 million in the past quarter. In another major deal, Alibaba, along with its fintech affiliate Ant Group, purchased 13 floors in a new office tower in Causeway Bay for approximately USD 925 million.
Leasing activity has also picked up pace. Financial firms such as IMC Group and Northern Trust secured new office spaces recently. Earlier, trading firm Jane Street had taken up six floors in an upcoming Central tower, marking one of the largest leasing transactions in the district in recent decades.
Despite these positive developments, the recovery remains uneven across Hong Kong's office market. Analysts have pointed out that the improvement is concentrated mainly in select Grade-A buildings in Central, while other areas continue to face weak demand due to excess supply.
A report by S&P Global highlighted that the commercial property recovery is highly selective and limited to premium assets and landlords who are able to attract high-value tenants, including luxury retail players.
The broader market has faced significant pressure in recent years. Office valuations and rents have dropped by more than 50 per cent since 2019, affecting developer cash flows and leading to debt restructuring in some cases. Banks have also reported stress due to rising bad loans linked to commercial real estate.
However, there are early signs of stabilisation in Central. Transaction prices for Grade-A offices have increased by around 5 per cent since the second half of the past year. Rental values have also seen a modest rise of 3.5 per cent in the initial months of this year.
Vacancy levels in Central have improved gradually, declining for three consecutive months and reaching 9.9 per cent recently. This is significantly lower than the overall city vacancy rate of 13.4 per cent and much better than Kowloon East, where vacancies remain high at 19.5 per cent.
Property consultants note that mainland Chinese firms, particularly in the technology and financial sectors, are increasingly looking to acquire office space in Central. This aligns with Hong Kong's broader strategy to strengthen its position as a regional technology and financial hub.
According to market experts, the peak of new office supply in Central has already passed during the 2024-25 period. Future supply over the next five years is expected to be significantly lower, which could support rental and price stability. Most newly completed spaces have already been absorbed, gradually shifting market dynamics in favour of landlords for premium properties.
In the leasing segment, international financial institutions continue to lead expansion activity, while Chinese securities firms are also active but typically in smaller transactions. Notably, the hedge fund sector, though occupying less than 2 per cent of total office space, contributed to 18 per cent of net demand in the past year.
Recent leasing activity has included major deals by firms such as J.P. Morgan and law firm Ropes & Gray, along with Chinese firms like Futu and E Fund, reflecting a mix of global and regional demand.
Market participants expect leasing momentum to remain strong, particularly among hedge funds and asset managers, many of which are actively expanding their operations in Hong Kong.
Source PTI
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