_Hong Kong property market 2025 forecasts
At a press conference held in Knight Frank Hong Kong office this afternoon, Antonio Wu, Head of Capital Markets, Greater China, Wendy Lau, Executive Director, Head of Hong Kong Office Strategy & Solutions, Steve Ng, Senior Director, Head of Kowloon Office Strategy & Solutions, Martin Wong, Senior Director, Head of Research & Consultancy, Greater China, Helen Mak, Senior Director and Head of Retail Services presented their forecasts for Hong Kong and Chinese mainland’s property markets for 2024. Clement Lau, Managing Director, Professional Services, Greater China participated in the media Q&A session.
Hong Kong Residential Market:
Martin Wong, Senior Director and Head of Research & Consultancy, Greater China
The Hong Kong property market is less affected by the external environment this year; demand and supply are the major factors influencing the local market. With a high level of unsold inventory, developers are tasked with clearing this stock. As interest rates gradually decrease, we expect developers to accelerate the launch of first-hand projects and provide more incentives to attract potential buyers. It is expected that the property market will perform better in 2025.
Residential home prices are not expected to increase significantly, with mass residential prices projected to rise by no more than 5%. First-hand and second-hand transactions are expected to increase slightly to 55,000-58,000 units, reflecting a year-on-year (YOY) increase of approximately 10-15%. First-hand sales are expected to constitute 35-40% of this total, potentially marketing the highest number of first-hand transactions since 2004. As interest rates decline, purchasing power in the market will be released, particularly supporting small-to-medium units priced at HKD 10 million or below. Due to the government's relaxation of the investment immigration programme to include residential property, transaction prices for properties over HKD 50 million are expected to rise.
In contrast, the leasing market remains slightly robust, supported by demand from talent schemes and the high-income group. We expect mass residential rents to rise by 3-5%, reaching record levels.
Due to market challenges, most government land sites will be rolled over from previous years. We estimate that the government land sale revenue in 2025 will range between HK$8-14 billion, while annual land premiums are expected to reach HK$10-15 billion.
Hong Kong Island Office Market:
Wendy Lau, Executive Director and Head of Hong Kong Office Strategy & Solutions
The overall leasing demand for Grade A offices on Hong Kong Island is currently stagnant, with rents continuing to decline and vacancy rates remaining high. This situation reflects the market concerns over economic uncertainty, prompting companies to adopt a more cautious approach in their leasing decisions.
While challenges remain, leasing activity in some Grade A offices has shown positive momentum, particularly in newly built prime office spaces, attracting tenants with higher requirements for office amenities. In addition, some landlords have proactively responded to market changes by offering more flexible leasing terms, which are also well-received by tenants. This indicated that appealing amenities, flexible leasing options and favourable terms are essential for landlords to remain competitive in a challenging market.
However, we believe that office rentals are still under pressure. The current high vacancy rate, coupled with an estimated additional supply of 4 million sq ft on Hong Kong Island from 2025-2026, means that the market's absorption capacity will be tested. While these new office buildings may entice some businesses to upgrade or relocate, it will still take time to absorb this additional supply. As such, we expect Grade A office rentals on Hong Kong Island to drop by 0% to 3% in 2025.
Overall, the Hong Kong Island office market will face complex challenges and opportunities in 2025. Changes in corporate demand, increasing market supply, and ongoing economic and political instability will be significant factors affecting rental trends. Landlords and investors will need to closely monitor market dynamics to respond effectively to the changing environment.
Kowloon Office Market:
Steve Ng, Senior Director, Head of Kowloon Office Strategy & Solutions
Despite the rise in office supply from previous years, new office supply in 2024 has dropped significantly compared to last year, leading to a slight overall decline in total supply. However, the market has not rebounded, as office demand in 2024 has contracted significantly, shifting to two government policy-driven sectors: infrastructure and education.
In view of the market uncertainties, Kowloon office tenants continue to seek rent reductions and size adjustments during renewals. Additionally, they are comparing cost-performance (CP) value of the offices more actively to consider relocations. In response, landlords are adjusting asking rents, increasing agency fees, and offering incentives to stay competitive. Looking ahead, the Kowloon office market outlook for 2025 is challenging, with overall office rents expected to drop by 2% to 4%.
Hong Kong Capital Markets:
Antonio Wu, Head of Capital Markets, Greater China
With the accumulation of unsold inventories across sectors, the overall real estate capital market has been slow in 2024 thus far.
From January to November 2024, a total of HK$34.6 billion in transactions (property values of HK$100 million or above) were recorded, representing a 58% decline compared to the previous year. Financing costs and insufficient yield expansion remain key concerns for investors.
In terms of property types, the office sector accounted for 37% of market activity and is expected to continue performing well, driven by end-users due to the greater availability of discounted and distressed assets. Notable transactions include the acquisition of Cheung Kei Center, Hong Kong Li-Ning Building (Formerly Harbour East) and DBS Bank buying 2 floors in The Center. The retail sector followed at 27%, as retail pricing further adjusted in terms of yield and unit price, while development sites accounted for 13%. Hotel and serviced apartment investments made up 7% of transactions, with investment in student housing conversions showing improvement.
Looking ahead to 2025, we expect the capital market to focus on unsold luxury residential units due to the relaxed New Capital Investment Entrant Scheme. Distressed sales will attract attention as investors take a cautious approach until interest rates stabilse. End-user investment sentiment is expected to improve with anticipated interest rate cuts, despite ongoing geopolitical tensions. En-bloc hotel and residential investments will remain strong, while the private mass residential rental index is projected to rise.
Hong Kong Retail Market:
Helen Mak, Senior Director, Head of Retail Services
Hong Kong's retail market is experiencing a significant decline, with total retail sales in the first ten months of 2024 estimated to have dropped by 7.1% compared to the same period last year. This weakness extends beyond luxury spending; even sales of necessities at supermarkets are showing a cautious trend. It is anticipated that total retail sales for the year may decline by 5% compared to last year, further increasing the pressure for retail rent and price adjustments.
The retail industry in Hong Kong is facing the impact of significant demographic changes. Government statistics indicate that between mid-2018 and mid-2024, the population aged 20 to 59 has decreased by 354,000, while the population aged 60 and above has significantly increased. These demographic shifts, along with the rise of online shopping, are directly impacting the performance of supermarket retail sales. Moreover, global economic uncertainty and the underperformance of the local residential market are accelerating the trend of downgraded consumption in Hong Kong.
In addition, mainland tourists have historically played a pivotal role in propelling Hong Kong's retail market. Recently, the government is revamping visa arrangements for mainland residents visiting Hong Kong. Although these measures are expected to attract more mainland tourists, current visitors tend to prefer in depth cultural experiences, which naturally affects luxury goods sales.
Overall, retail consumption in Hong Kong has not recovered as expected, leading most retailers to adopt a cautious attitude towards expansion. While the decline in retail rents next year may not be significant compared to 2024, rents will continue to be stable due to demographic changes and shifts in the consumption patterns of mainland tourists. However, the upcoming Kai Tak Sports Park is expected to enhance the appeal of local experiential consumption, attracting more local customers and tourists to spend in Hong Kong.
Hong Kong Industrial Services Market:
Nathan Chan, Director and Head of Industrial & Logistics Services
In 2024, the industrial market faced challenges, with overall vacancy reaching a record high of 8.2%. Vacancy rates for Modern Logistics facilities and general industrial buildings increased to 9.4% (up from 8.2% in Q4 2023) and 6.6% (up from 3.5% in Q4 2023), respectively. This was largely due to Third-Party Logistics (3PLs) scaling back operations amid economic uncertainty and a downturn in the retail and F&B sectors, which undermined leasing demand.
Rent levels for both Modern Logistics and General Industrial properties dropped slightly in 2024, by 4.2% and 2.5%, respectively. One shrinking sector is cold storage; increased spending by Hong Kong residents in Chinese mainland has reduced demand for frozen food, leading to more lease surrenders among cold storage operators.
Despite these challenges, we expect demand from the e-commerce and electric vehicle sectors to rise in 2025. Online shopping is becoming more prevalent, and e-commerce platforms like Taobao, JD, and HKTV mall are expanding their investments in Hong Kong. Additionally, the entry of more EV brands will boost demand for ground-floor workshops.
In conclusion, we anticipate weak demand in the industrial and logistics sectors, with rents for Modern Logistics and flatted factories expected to drop by 2% to 3% in 2025.
Photo description: (From left to right) Martin Wong, Senior Director, Head of Research & Consultancy, Greater China, Helen Mak, Senior Director and Head of Retail Services, Antonio Wu, Head of Capital Markets, Greater China, Steve Ng, Senior Director, Head of Kowloon Office Strategy & Solutions and Wendy Lau, Executive Director, Head of Hong Kong Office Strategy & Solutions.