Overall Office Leasing Activity Picks Up, but Grade A Office and Prime Retail High-Street Rents Remain Under Pressure

• 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.

HONG KONG SAR - Media OutReach Newswire - 3 July 2025 -Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets 1H 2025 Review and 2H Outlook press conference. 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 volumes 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. Grade A office leasing market: New lease area reached 1.2 million sf, the highest level since the COVID-19 periodThe Hong Kong Grade A office market witnessed accelerated leasing momentum in Q2 2025, underpinned by relocation and expansion activities from the banking & finance and insurance sectors, The new leased transaction area for Q2 2025 reached 1.2 million sf, the highest quarterly level since Q3 2019. Several big-ticket deals were recorded, including Jane Street's pre-commitment of more than 207,000 sf at Site 3 at the Central Harbourfront project. The overall office availability rate remained largely stable at 19.3% in Q2, while quarterly positive net absorption slowed, dropping almost 50% to record 71,400 sf. With the new supply pipeline remaining abundant, the overall Grade A office rental level continued to trend down, dropping 1% q-o-q in Q2, contributing to an overall 3.4% drop for the 1H 2025 period. Chart 1: Rents of Grade A offices in Hong KongJohn Siu, Managing Director, Hong Kong, Cushman & Wakefield,said, "In the 1H 2025 period, the Hong Kong Stock Exchange is expected to rank first globally in terms of funds raised through the Initial Public Offering (IPO) market — reclaiming the top spot for the first time since 2019. With more Chinese mainland stocks expected in the pipeline, this should help support office market sentiment and stimulate downstream leasing demand, particularly in the banking & finance and professional services sectors. Despite the improving market sentiment, an ample new supply pipeline and high availability may continue to weigh on rental performance in 2H 2025, and we forecast the overall office rental to decline by 7%–9% throughout 2025." John Siu added, "According to Cushman & Wakefield's new What Occupiers Want 2025 report, the top three priorities shaping occupiers' leasing strategies are cost control, talent retention, and operational excellence. While occupiers remain cost-cautious, they increasingly recognize the importance of a healthy and engaging workplace in attracting and retaining talent. Against this backdrop, other than offering rental incentives, we encourage landlords to collaborate closely with occupiers to create unique and value-driven work environments, so as to stand out in today's highly competitive office market." Retail leasing market: Retail sales continued to contract despite improving tourist arrivals, while high street rents remained under pressure For the January to May 2025 period, Hong Kong recorded more than 20 million visitor arrivals, growing 12% y-o-y. We believe this growth is supported by the opening of the Kai Tak Sports Park and the recent hosting of a range of mega-events at the venue. However, the rise in visitor numbers has not yet translated into...