In a comprehensive analysis of the Hong Kong real estate landscape, CBRE has released its Market Outlook for 2025, highlighting a cautious yet hopeful recovery on the horizon for the city’s commercial property sectors. 2024 proved to be a testing year, marked by a sluggish economic rebound in mainland China, an influx of new office supply, persistent high interest rates, and disappointing retail sales figures. Despite these challenges, cautious optimism prevails among investors and corporate occupants.

As interest rates begin to decline and an anticipated economic stimulus from mainland China emerges, the commercial real estate sector is expected to gain momentum in the coming year. CBRE’s Executive Director and Head of Research, Marcos Chan, optimistically stated, 'Demand is set to improve as financing costs decrease. However, the recovery is expected to be modest, primarily reflected in an uptick in transaction volumes.'

Office Space Trends

In the realm of Grade A office spaces, leasing activity was subdued in the final quarter of 2024, witnessing a notable 38% quarter-on-quarter drop to 661,000 sq. ft. Despite this downturn, the full-year leasing volume climbed to 4.3 million sq. ft., reflecting a 6.3% increase from the previous year's figures. However, negative net absorption trends reveal that Central Hong Kong faced challenges, with its submarket recording a downturn in 2024.

The increase in vacancy rates, now at 17%, compounded by excess space availability, has significantly pressured rental prices, which fell by 1.7% in the last quarter alone. Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, described the leasing landscape as showing slight improvements but cautioned that upcoming new supply could exacerbate existing challenges, projecting rents could decrease by an additional 5% to 10% in 2025.

Retail Sector Resilience

The retail environment remained turbulent, marked by a staggering 7.1% decline in total retail sales year-on-year during the first eleven months of 2024. However, the food and beverage (F&B) sector demonstrated resilience amid increasing tourist visitation, maintaining a steady performance with only a slight decrease of 0.3% in receipts. Lawrence Wan, Senior Director, Head of Advisory & Transaction Services – Retail, highlighted how lower rents have spurred leasing demand, particularly from the F&B segment, which accounted for significant leasing volume in a challenging market.

With high street shop vacancy rates stabilizing at 7.8% as of December 2024—improved from the previous year—the outlook for high-street retail rents appears promising, with expectations of robust growth supported by increasing tourism and renewed interest from international brands.

Industrial Sector Developments

Meanwhile, the industrial market faced hurdles, with new leasing volumes contracting to their lowest since 2014. E-commerce operators, however, have emerged as a driving force, representing 26% of total leasing activity in 2024. As Samuel Lai, Executive Director, Head of Advisory & Transaction Services – Industrial & Logistics confirmed, the logistics demand might stabilize if domestic consumption in mainland China continues to accelerate.

Future Projections

As Hong Kong navigates a path towards recovery, key sectors are poised for modest improvements in 2025 amid anticipated economic changes. The overall sentiment indicates that while challenges remain, the potential for growth exists, provided that external economic pressures do not impede progress.

Experts warn that while the outlook is significantly better than in previous months, active participation from both corporate and retail sectors will be critical to capitalize on the improved economic conditions. With the tourism sector also set to boost demand, stakeholders are keenly watching how the landscape evolves as we head into the new year. Will Hong Kong's commercial real estate market finally turn the corner in 2025? Only time will tell!