- Homebuyers and investors were both active in the Hong Kong residential market in Q2 2025, incentivized by a weakening HIBOR and rapid launches of new projects by developers at attractive prices. The total residential transaction number for the Q2 period is expected to rise by 30% q-o-q to reach 15,900 units.
- The Grade A office new-lease transaction area reached 1.2 million sf, the highest level since the COVID-19 pandemic period. However, the overall Grade A office rental level continued to decline, falling 1% q-o-q, resulting in an overall 3.4% drop for the 1H 2025 period.
- Retail market sale performance has yet to demonstrate significant improvement despite an increase in visitor arrivals. High street vacancy rates generally trended upwards across core districts in Q2, weighing on overall rental levels. Nevertheless, a notable number of new leasing transactions were recorded, reflecting an ongoing “tenant reshuffling” in the market.
The one-month Hong Kong Interbank Offered Rate (HIBOR) has been gradually softening since May, resulting in lower mortgage rates. Coupled with developers actively launching new residential projects at competitive prices, momentum in the primary residential market remained strong in the period. Improved rental yields also encouraged investors to re-enter the housing market, supporting monthly transaction numbers that exceeded 5,000 cases in Q2.
In the Grade A office sector, net absorption remained positive in Q2, with Hong Kong Island showing greater resilience. However, high availability and an abundant future supply pipeline continued to weigh on rental performance. In the retail sector, despite a steady rise in visitor arrivals, retail sales have yet to show notable improvement. Vacancy pressures persisted, leading to a general downward trend of high street retail rents during Q2.
Office Market Key Takeaways
- Underpinned by the banking & finance sector, the new leased area reached 1.2 million sf in Q2, the highest quarterly performance since the outbreak of COVID-19 in Q1 2020.
- The overall rental decline narrowed to -1.0% q-o-q in Q2 (compared to -2.5% q-o-q in Q1), with the overall availability rate remaining largely flat at 19.3%.
- The recovery of IPO activity should help support market sentiment and downstream office demand, chiefly from banking & finance and professional services firms.
- We forecast the overall office rental level to drop in a range of 7% to 9% in 2025, amid a heavy new supply pipeline while occupiers are still cost-cautious.
- We advise landlords to provide enhanced amenities and services to create unique and value-driven work environments for occupiers to maintain their competitiveness.
Retail Market Key Takeaways
- Retail sales performance continued to experience negative growth, although with a narrower decline.
- The overall vacancy rate trended upward in Q2. Leasing transaction activity was relatively active in Mongkok and Tsimshatsui, led by more affordable consumer brands.
- The market is experiencing a reshuffling of retailers, which is likely to continue throughout the year, creating a more diversified and dynamic tenant mix in the retail landscape.
- Core high street retail and F&B rents are expected to drop in a range of 1% to 3% on a yearly basis.
- The proactive promotion of mega events by the government will continue to attract international tourists, in turn benefitting the retail market catchment area.
Residential Market Key Takeaways
- Residential market sentiment has been supported by the relatively low HIBOR combined with active launches of primary market sales.
- Housing sales momentum sustained, with S&Ps transaction numbers in Q2 2025 expected to rise by 30% q-o-q to approximately 15,900 units.
- Cushman & Wakefield's small-to-mid size home price index rose by 0.45% q-o-q, along with a recovery in our verbal enquiry index.
- The full-year 2025 residential transaction number is expected to be similar to the 2024 level.
- We forecast overall 2025 home prices to fluctuate within a range of ±3%, amid the uncertainties in the geopolitical environment and interest rate movements.
