• Smaller-sized residential units have been more sought-after following the relaxation of the maximum property value chargeable at a HK$100 stamp duty level as announced in the latest government budget speech, supporting first-hand residential sales.

The total residential unit transaction number for Q1 climbed 24% y-o-y to reach 12,200 units.
• The Grade A office market recorded positive net absorption of 143,700 sf in Q1, although the high availability rate saw the overall rental level soften further by 2.5% q-o-q.
• Growing visitor arrival numbers in Q1 failed to drive up retail sales, with high-street rents across core retail districts adjusting within a +/-2% range q-o-q. However, an expected boost from the mega event economy is expected to be reflected later this year.

HONG KONG SAR - Media OutReach Newswire - 7 April 2025 - Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets Q1 2025 Review and Outlook press conference. Following the government's announcement to raise the residential property maximum value chargeable at a stamp duty level of HK$100 from HK$3 million to HK$4 million in the latest budget speech, first-time home buyers and investors were more active, resulting in a significant uptick of transactions in March from the first two months of the year. However, overall home prices in Q1 continued to trend down as interest rates stayed at a relatively higher level.

In the Hong Kong office market, the Grade A sector recorded positive net absorption in Q1, although the abundant available space continued to weigh on the rental outlook. In the retail market, the structural changes seen in tourists' and local residents' consumption patterns continued to curtail retail sales performance, in turn hindering retail market rental grow. However, we expect that the city's ongoing mega event program activity will support greater visitor arrivals and consequent retail sales in the coming few quarters.

Grade A office leasing market: New demand led by banking & finance sector, although new supply ensures continued high availability and pressure on rental levels

The Grade A office market achieved a sixth consecutive quarter of positive net absorption in Q1 2025, reaching 143,700 sf. Despite the positive leasing momentum, the citywide overall availability rate edged up q-o-q to 19.2%. The expanded availability was primarily due to the completion of THE CENDAS project in Kowloon East, bringing 352,800 sf of new Grade A space to the office market. Relocation and expansion activities from the banking & finance and insurance sectors were the key drivers of new leasing activity in the quarter, with the two sectors accounting for approximately 46% of total new leased area. Notable transactions included American hedge fund Point72's commitment to a 49,500 sf space at The Henderson.

With incoming new supply and the availability rate remaining at a high level, the citywide overall Grade A office rental level softened further by 2.5% q-o-q to record HK$43.9 per sf per month. Compared with the peak of Q1 2019, the overall Grade A office rental level has now fallen by 42.2%.

Chart 1: Rents of Grade A offices in Hong Kong

John Siu, Managing Director, Hong Kong, Cushman & Wakefield, said, "Looking ahead, the recovery of Hong Kong's initial public offering (IPO) pipeline and stock market performance, as well as the measures introduced by the Hong Kong Government to attract more global capital, enterprises, and family offices, should help support downstream demand from the finance sector, in turn underpinning the city's office market sentiment. As current office rents are now discounted by more than 40% against the prior peak level, occupiers pursuing flight-to-quality strategies have greater options. In the coming three quarters of 2025, around 3 million sf of new supply is expected to enter the market. This presages a further intensifying of the competitive leasing environment. We expect the overall average office rental level to remain under pressure, with a decline of 7%–9% throughout 2025."

Retail leasing market: Retail performance recovery missed expectations, high street rents mixed

The Hong Kong retail market has been unable to demonstrate a significant sales performance improvement despite the continued growth in tourist arrival numbers, predominantly due to the continued structural changes in the consumption preferences of visitors and locals. The city's overall retail sales for the January to February 2025 period recorded HK$64.8 billion, representing a drop of 7.8% y-o-y.

Generally, inbound visitors from the Chinese mainland no longer focus their time on traditional shopping activities at malls. In turn, high-end categories in the city's key retail sectors have been the most impacted. Retail sales in the Jewellery & Watches and Fashion & Accessories sectors declined 15.8% and 6.4% y-o-y in the first two months of January and February, respectively. The Supermarkets sector, which had performed steadily in the past few years, also recorded a 4.4% y-o-y drop. Meanwhile, Food, Alcohol & Tobacco; and Medicines & Cosmetics, were the only sectors to post growth, albeit modestly at within 1% y-o-y.

Leasing transactions in the Tsimshatsui retail district were relatively active, with landlords more willing to offer greater flexibility and rental discounts. In turn, this attracted tenants from different sectors along with Chinese mainland brands to expand into core districts, while also encouraging some local retailers to look for opportunities again. Key district vacancy rates in Kowloon remained stable with Tsimshatsui and Mongkok at 9.4% and 8.4%, respectively. Causeway Bay was the only core retail district to record greater vacancy in Q1, jumping to 5.3% from 0% in Q4 2024. The overall vacancy rate in Central dropped slightly q-o-q from 8.6% to 7.1%.

Overall high street retail rents in Tsimshatsui and Causeway Bay fell slightly at 2.3% and 1.0% q-o-q, respectively. In Mongkok, the entry of some aggressively moving tenants prompted a moderate q-o-q increase of 0.5%. The Central district overall rental level was unchanged. In the F&B sector, rental levels remained soft, with Causeway Bay and Mongkok falling in a range of 0.4% to 1.8% q-o-q. Tsimshatsui F&B rents remained unchanged, while the Central F&B sector saw a 0.5% uptick q-o-q, chiefly supported by high-end dining options.

Chart 2: High street retail rents in prime districts in Hong Kong

John Siu added, "In Q1, leasing activity on Haiphong Road was particularly active. Deals concluded during the quarter involved retailers that already have a presence in the area. Most of these retailers believe that the current rental level has dropped to an attractive level. In spite of the change in tourists' spending patterns and uncertain sales levels, they are still willing to sign new leases as the costs become more controllable. We expect these uncertainties to stay in the short-term, hence hindering the pace of rental recovery. Looking ahead, we believe Chinese mainland retailers will continue to be the major source of new leasing demand in the market, to cater to the consumption habits and preferences of residents coming to Hong Kong from the mainland in recent years. The government's efforts to promote tourism and the development of the mega event economy also led us to believe that the local retail market will gain support and receive a boost later this year with the successive hosting of mega events and concerts."

Residential market: Relaxation of stamp duty policy supports transaction numbers recovery, price decline narrows by end of quarter

With the government's relaxation of the stamp duty levy on properties priced up to HK$4 million in the February budget speech, coupled with the wealth effect brought by the stock market recovery at the start of the year, overall residential market sentiment improved in Q1. The residential transaction number in March strengthened significantly to close to 5,400 units, driving the total Q1 transaction number up 24% y-o-y to circa 12,200 units. As some buyers regained confidence to enter the market, developers seized the opportunity to launch new projects, leading to a pick-up in the primary residential market, with the proportion of first-hand sales expected to increase in March.

Chart 3: Number of residential sale & purchase agreements

Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield, commented, "Rating and Valuation Department data shows that overall residential prices continued to decline in February by 0.9% m-o-m, bringing a combined drop of 1.6% for the first two months of 2025. According to Cushman & Wakefield's small- to medium-sized residential price index, home prices exhibited further fluctuations by correcting at around 1.7% in Q1. Among the residential unit sectors, price levels corrected most notably in City One Shatin, representing the small-sized sector, with a drop of 9.1% q-o-q. Prices fell by 2.2% in Taikoo Shing, representing the mid-sized sector, while prices at the luxury sector Residence Bel-Air saw an overall 7.4% decrease in Q1 2025. We expect that upcoming residential transactions will be mostly focused on smaller-sized units."

Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield, added, "Although our Cushman & Wakefield verbal inquiry index in March rebounded by around 26% from the January low, and transaction numbers have risen to more than 5,300 units, the local property market is still constrained by the uncertainties brought about by recent global trade and economic conditions. Looking ahead, if the economy and stock market can stabilize again, and the U.S. Federal Reserve continues to cut interest rates within the year, it will support the residential transaction level, thereby stabilizing housing prices. Given that the current market conditions are more volatile than expected at the beginning of the year, some investors and potential buyers may adopt a wait-and-see approach again. We expect overall transaction numbers to be similar to last year, and property prices may fluctuate within a range of ±3% during the year."

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Photo 1: (From left to right) Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield; John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield, and Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield.