World Wei Lishi: The leasing activities of office buildings in Hong Kong are expected to rebound in the next 3 years.

CBRE released a research report, which comprehensively reviews and analyzes the dynamics of the office market in Hong Kong from 2022 to 2025, and predicts trends up to 2028. With the improvement of the economic environment, it is expected that the demand for office space in Hong Kong will gradually rise in the coming years. Lease activities are expected to increase in the next three years compared to the period from 2022 to 2025. Growth will be mainly driven by factors such as the continued recovery and steady growth of the traditional service industry, an increase in the number of Mainland Chinese companies setting up operations in Hong Kong, and the emerging demand from new economy industries. Key trends from April 2022 to March 2025: - Despite companies emphasizing cost savings, some industries have expanded their office space, leading to an increase of 1.1 million square feet in total leased area. - Growth has been driven in part by non-traditional tenant industries, which typically have lower activity in the Grade A office market. Many major industries are still in a state of contraction. - Despite a rise in lease rates, significant supply increases have almost doubled the vacancy rate compared to before the pandemic. The current vacancy rate of over 17% is a historical high. - During the research period, there was an additional supply of Grade A office space, totaling 7 million square feet, which is 2.3 times the new area added in the previous research period (April 2019 to March 2022). - Such a high level of new supply over a three-year rolling basis has not been seen in the Hong Kong office market for 15 years. - The leasing pace of new office supply is slow. 55% of the new supply during the research period remains unleased, contributing to 3.9 million square feet of vacant space in Hong Kong. - Despite an increase in office supply, new leasing volume has only seen a marginal increase of 3% compared to the previous research period, averaging 987,000 square feet per quarter. CBRE found that the Grade A office market in Hong Kong has witnessed several new trends in the past three years: - A recovery in total leased area, with an increase of 1.1 million square feet. - Emerging industries dominated by the public sector and education, as well as accelerated growth in emerging non-traditional banking and financial institutions. - Fewer new tenants leasing office space. - Changes in corporate office footprints, with local companies expanding and multinational corporations downsizing. - A slowdown in decentralization, with the involved space declining in two consecutive research periods. - More green office spaces, with owners actively redeveloping to meet environmental standards. - An increase in owner-occupied demand, with occupants increasing their share in leased spaces. - During the peak office supply period, there was a slowdown in the absorption rate of new office spaces. - A reduction in the scale of shared office spaces industry. CBRE's Executive Director and Head of Research in Hong Kong, Chen Jinping, stated that the Grade A office market in Hong Kong is entering a new phase of re-adjustment. The expansion of education institutions and non-traditional banking and financial institutions, with a leasing growth of more than 430,000 square feet, along with the resurgence of retail-related and insurance company demands, signals a dynamic shift in tenant demand. Despite a significant increase in new supply pushing up vacancy rates, the momentum of Hong Kong's service industry growth, coupled with the clear rebound in tenant demand, will continue to drive the office leasing market. Outlook for 2026-2028 CBRE is confident in the economic prospects of Hong Kong. Recent improvements in various global rankings have bolstered market confidence in the economy, solidified the city's fundamentals, and expanded its ability to attract global enterprises, capital, and talent across different sectors. Economic momentum will primarily be driven by government initiatives to promote emerging industries, complemented by the steady growth of the city's traditional industries. With the improvement of the economic environment, it is expected that the demand for office space in Hong Kong will gradually rise in the coming years. Lease activities are expected to increase in the next three years compared to the period from 2022 to 2025. Growth will be mainly driven by factors such as: - The continued recovery and steady growth of the traditional service industry. - An increase in the number of Mainland Chinese companies setting up operations in Hong Kong. - Emerging demand from new economy industries. - Tenants upgrading to office spaces in new strategic development areas. CBRE predicts the following trends in the Grade A office market in Hong Kong for the next three years: - Rethinking workplace strategies to align with the new normal. - Competition will focus on several non-core district markets in Kowloon, with varying dynamics. - As inventory growth begins to slow in the next three years, the market will enter a period of space absorption. - With the refurbishment of commercial buildings and increased demand from end-users, forced relocation and upgrade demands will rise. - Lease rates in Central will continue to recover and be driven by financial companies. - Tsim Sha Tsui West will become a new emerging hub for financial companies. - Due to a decrease in new supply in non-core areas, the trend of decentralization to Central will slow down. - Owners will continue to adopt flexible strategies, and green leases will become more prevalent. The period from 2025 to 2028: A new chapter in the Grade A office market landscape in Hong Kong CBRE's Executive Director and Head of Leasing Transactions and Advisory Department in Hong Kong, Feng Huishi, stated that as the Hong Kong economy gradually recovers, the Grade A office market is reshaping and entering a phase of space digestion. With the steady rebound of the traditional service industry, the expansion of Mainland Chinese companies, and the drive from emerging industry demands, leasing activities are expected to rise in the next three years. Although the overall vacancy rate remains high, each district will perform differently based on its supply and demand dynamics. Feng Huishi added that Tsim Sha Tsui West is expected to emerge as a strategically attractive new area, alongside the traditional business districts. Feng Huishi emphasized that tenants are increasingly valuing flexibility and a work environment centered on holistic health. To address the persistent high vacancy rates and evolving tenant demands, owners are adopting more flexible leasing strategies. These include facilities in fully-furnished office buildings, shared amenities such as cafes and wellness spaces, and green leasing measures that align with corporate ESG goals. These are particularly attractive to small tenants and start-up companies seeking cost-effective and ready-to-use solutions. Owners who can provide these measures to meet the changing market demands will be best positioned for success in the market development in the next phase.