Hong Kong office market posts strong third quarter rebound amid rising leasing demand

HONG KONG, 21 October 2025 – Hong Kong's office market recorded a notable rebound in the third quarter of 2025, driven by stronger leasing momentum from IPO-related and wealth management tenants, according to JLL's latest Preliminary Market Summary (3Q25) released today. The residential remained resilient, supported by stable occupier demand and selective investment interest. Meanwhile, retail markets have seen modest improvements in leasing activities, supported by the lower rental rates. With retail sales showing signs of stabilisation and yields remaining elevated, investor interest in retail assets is gradually recovering.  For the industrial market, while the leasing market remained subdued, the investment volume improved, driven by end-user demand and the redevelopment potential.

Cathie Chung, Senior Director of Research at JLL, said: "September prime rate cuts by major Hong Kong banks following the US have helped stabilise overall market sentiment and signalled the start of an accommodative cycle for real estate. The residential sector is expected to benefit first from lower financing costs, while the impact on the broader commercial markets remains limited given the current tight bank financing conditions. The office market stablisation in the third quarter was largely driven by growth in leasing demand rather than lower interest rates."

The office market showed signs of gradual recovery in the third quarter. Total net absorption rebounded 137.5% quarter-on-quarter ("q-o-q") to 646,000 sq ft, reversing the subdued performance in the first half of the year. Despite new completions, the overall office vacancy rate continued to improve, declining from 13.6% in June to 13.4% in September. Notably, Central and Kowloon East both saw vacancy rates drop by 0.8 percentage points, while Wanchai/Causeway Bay recorded a rise of 2.5 percentage points to 12.0%.

Overall office rents declined 0.8% q-o-q in the third quarter, with all submarkets recording decreases. Rents in Central fell 0.3%, while Hong Kong East registered the largest drop at 3.2%.

Cathie said: "Office leasing momentum improved in the third quarter as more occupiers became actively engaged in seeking expansion and upgrade opportunities. Financial, wealth management, and professional services firms drove demand for premium space in core areas. Renewed IPO activity has contributed to stronger leasing activity, while some occupiers took advantage of more favourable rental levels to upgrade premises or consolidate operations. However, the market continues to face pressure from robust supply and elevated vacancy rates. We still expect Grade A office rents to decline by approximately 5% for the full year."

Hong Kong Grade A Office Indicator – % Change

As of the end of September, High Street Shop vacancy rates declined from 10.7% to 9.7% q-o-q, as retailers took advantage of lower rents to secure prime locations.

In the third quarter, vacancy rates for High Street Shops declined to below 10%, though mainly driven by landlords' rental adjustments and leasing incentives rather than a broad-based improvement in retail fundamentals. Rents edged down by 1.4% q-o-q for High Street Shops and fell 3.3% and 3.8% for Overall Prime Shopping Centres and Premium Prime Shopping Centres, respectively. Notably, High Street Shops rents are now 52.6% below the last peak level in the second quarter of 2019, encouraging occupiers to  relocate to prime locations for greater brand exposure. The firm expects rents of High Street Shops and Overall Prime shopping centres to decline by 5-10% this year. 

Mass residential capital values remained broadly stable in the third quarter, rising 0.4% q-o-q, following a 1.1% decline in the previous quarter.

Primary market transactions remained active in 3Q25 as developers pushed new launches, keeping total volume broadly steady compared with the previous quarter. Although the one‑month HIBOR rebounded to 3.6% by end‑September after a sharp decline in 2Q25, major banks lowered their prime rates by 12.5 bps following the US Federal Reserve's September rate cut, providing support to the residential market.

The inflow of non-local talent continued to support demand in the luxury leasing market, particularly during the summer peak season, with rental values rising by 2.0% q-o-q in the third quarter.

"Hong Kong's housing market has recently shown signs of stabilisation, with brisk primary market transactions. However, demand is largely driven by mainland buyers. We believe the residential market is entering a 'soft landing' phase, with prices likely to move sideways at the bottom in the short term. Developers are expected to prioritise inventory clearance, given the existing stock of over 100,000 units and the government's plan to increase public housing supply to 190,000 units over the next five years. Despite recent easing, interest rates remain elevated, sustaining pressure on holding costs, developers are likely to continue launching new projects at more competitive prices. We maintained our previous market forecast, expecting mass residential properties to drop by around 5% this year," she added. 

The industrial leasing market remained muted, with limited new commitments recorded. The overall vacancy rate inched up to 9.3% in the third quarter from 9.1% in the second quarter. Prime warehouse rents notched a 2.1% decline in the third quarter, similar to the 2.4% drop in the second quarter.

Total trade surged by 14.2% year-on-year in July and August, with imports and total exports rising by 14.0% and 14.5%, respectively. However, the trade recovery did not translate into stronger industrial leasing activity due to the anticipated short-term nature of the recovery. In response to persistent trade volatility, landlords have demonstrated increased flexibility in storage lease terms, including adjustments to rental rates and lease durations. Rental for prime warehouses are expected to drop by 5-10% in 2025.