LeFang: The vacancy rate of Grade A office buildings in Hong Kong is expected to remain at a relatively high level.

Recently, Savills released the latest "Hong Kong Monthly Property Market Report", pointing out that at the beginning of this year, although there were no major transactions in the Hong Kong Grade A office market, the market performance was active. The financial industry remains optimistic about the office market, especially hedge funds. Looking ahead, with the continuous introduction of new supply into the market, Savills predicts that the vacancy rate of Grade A office buildings in Hong Kong will remain at a high level. Savills observed that in January, there was an increase in office leasing inquiries and viewings in Hong Kong. Some luxury goods companies are actively integrating and upgrading the quality of office space, negotiating favorable leasing terms with landlords during the market downturn, and upgrading office spaces. Despite facing some challenges, there are signs of improvement in office leasing activities, especially in the financial industry. The trend of companies consolidating and tenants seeking higher quality office spaces is expected to continue. In January of this year, due to the holiday season, the office market in Kowloon performed poorly. Although new office leasing transactions increased by 30% month-on-month, this growth was mainly due to the low number of transactions in December. Most office market activities were focused on renewals, especially in East Kowloon. The lack of significant new office leasing transactions indicates that many companies have postponed relocation decisions due to the festive period. Some large office transactions exceeding 10,000 square feet are still under negotiation. On the other hand, some companies choose to renew their leases while simultaneously reducing the leased area by 10-15% to align with current operating environments. This trend is particularly noticeable in the manufacturing, trade, and procurement industries as these companies optimize workflows and reduce staff needs. Overall, Savills expects demand in the office market in Kowloon to remain weak in the short term. However, it is expected that the supply of new office buildings this year will be less than 1 million square feet, which may accelerate the net absorption rate of office space and keep office rents strong this year, making it unlikely for a significant decrease. The Hong Kong retail market continues to perform weakly, with a 7.3% year-on-year decrease in total retail sales in 2024. The unfavorable macroeconomic environment in 2024, coupled with an increase in local residents' consumption in the mainland and a decrease in spending by visitors to Hong Kong, resulted in disappointing retail sales figures. In various types of retail stores, sales of durable goods and jewelry, watches, and precious gifts categories saw a significant decline, highlighting the adverse effects of challenging economic conditions on retail consumption. In addition, although retail sales of bread, cakes, candies, and cookies decreased by 14.1% year-on-year in 2024, some Western bakery retailers have successfully coped with market challenges. With the opening of the Kai Tak Sports Park and related large-scale sports and entertainment activities stimulating local consumers and tourists' spending, the Hong Kong government estimates that it will attract over 840,000 visitors and bring in over HK$3.3 billion in consumption. It is expected that the total retail sales will stabilize in 2025. Despite retail and macroeconomic conditions not fully recovering, small and medium-sized enterprises still have opportunities to develop the market and stimulate market growth.