_Robust Residential Transaction Growth amid Price Sensitivity and Rising Inventory Pressure

Knight Frank's latest Hong Kong Quarterly Report highlights varied property market performance. Hong Kong Island office market continued to exhibit a clear bifurcation between submarkets through the end of 2025. The Kowloon office market overall relocation appetite remained muted, with transaction volumes largely sustained by lease renewals. Although residential inventory remains a concern, pressure has eased compared with previous years. Hong Kong’s retail market is showing early signs of stabilisation. In 2025, the sector continued to face competitive pressure from cross-border consumption and online sales.

Grade-A Office:

Hong Kong Island

The market continued to exhibit a clear bifurcation between submarkets through the end of 2025. Leasing momentum in premium Grade-A buildings picked up, with premier office rents in Central rising 3% YoY in 2025 overall.

On the other hand, a substantial supply influx scheduled for 2026, along with secondary vacancies, continues to weigh on the performance of traditional buildings in Central and other submarkets. Notably, traditional Central, Causeway Bay and Quarry Bay underperformed.

Landlords remain flexible with leasing agreements, offering not only rental adjustments but also various non-financial incentives. This dynamic has continued to favour tenants in lease negotiations. Tenants are increasingly seeking the removal or relaxation of restrictive clauses.

Kowloon

Leasing activity in Kowloon softened notably in Q4, particularly in December due to the holiday season and corporate decision-making delays. Overall relocation appetite remained muted, with transaction volumes largely sustained by lease renewals.

Tsim Sha Tsui outperformed the broader Kowloon market. Demand was mainly driven by banking & finance and insurance sectors. Following the completion of IGC in December, the vacancy rate in TST (including IGC) increased to 21.0%. As no major new supply is expected in the near term, the market is likely to absorb the existing vacancies gradually.

More occupiers are cautiously resuming relocation studies, adopting a conservative strategy that prioritises cost efficiency. They continue to focus on securing competitive rents, minimising capital expenditure on fit-out and relocation costs, and maximising space utilisation.

Residential:

Hong Kong residential transaction volume increased 18.3% YoY in 2025. Primary activity remained strong, accounting for 33% of total sales, above the five-year average of 27%.

The luxury segment sustained momentum in Q4 2025, with 81 transactions above HK$78 million (US$10 million), a 45% QoQ increase. The market saw stronger participation from foreign buyers, complementing the continued presence of Chinese Mainland buyers.

Although residential inventory remains a concern, pressure has eased compared with previous years. As of December 2025, unsold units stood at approximately 11,250, down from 17,530 in June 2025. Developers are adopting a more strategic approach amid improving market sentiment and homebuying activity, launching projects at market-acceptable pricing and selectively replenishing their land banks. This measured strategy is helping restore confidence and support a gradual rebalancing of the market.

Retail:

Hong Kong’s retail market is showing early signs of stabilisation. In 2025, the sector continued to face competitive pressure from cross-border consumption and online sales.

Visitor arrivals are recovering, but per capita spending remains well below pre-COVID levels, limiting retail uplift. These shifts, together with domestic demand factors, are reshaping the retail landscape. On the high-street level, structural shifts in consumption patterns and substantial rental corrections have encouraged a more diversified tenant mix beyond traditional retail. To secure occupancy in the face of conservative expansion by general retailers, landlords may consider F&B tenants, which remain more resilient to e-commerce competition but generally pay lower rents and face rising cost pressures, as well as intensifying local and regional competition.

Looking ahead, gradual consumption recovery and a broader tenant mix are expected to support rental growth of 5%–10% for prime street shops. This outlook is underpinned by strong street visibility, resilient Chinese mainland visitor demand, and limited new supply.