Gao Li: The downward cycle of office rental prices in Hong Kong is nearing its end. High-quality assets in core commercial areas have the potential for a moderate rebound.

Knight Frank has released a report on the "Outlook for the Hong Kong Property Market in 2026," which shows clearer signs of a moderate recovery in the Hong Kong commercial property market. Despite challenges still present, opportunities are emerging in various sectors such as Grade A office buildings, retail, industrial, and accommodation. Yim Wai Ping, Head of Client Services at Knight Frank Hong Kong, stated that the downward cycle of office rents is nearing its end. Although the pace of recovery may be uneven, prime assets in the core business districts have the conditions for a moderate rebound, and businesses are actively taking advantage of attractive rental levels. Li Yanyan, Head of Research and Retail Advisory at Knight Frank Hong Kong, stated, "The Hong Kong commercial property market showed signs of stability in the second half of 2025, with leasing and investment sentiment gradually improving. 2026 will provide investors and tenants with opportunities for realignment. Office assets remain attractive, while accommodation and education-related properties have a solid market foundation and offer stable returns, enhancing their attractiveness. With the recovery of tourism and structural demand driving factors, we expect the market trends in each sector to become more balanced." Regarding office buildings, Knight Frank pointed out that in the second half of 2025, the office market sentiment significantly improved, with net absorption of 428,000 and 1.23 million square feet in the third and fourth quarters respectively. The full year net absorption reached 1.73 million square feet, the highest since 2018. However, due to the impact of over 3 million square feet of new supply entering the market, the overall vacancy rate increased from 16.8% to 17.5%, equivalent to approximately 14.9 million square feet of vacant space. In addition, the decline in rents narrowed significantly in the second half of the year, with Grade A office rents falling by 5.8% for the whole year. Knight Frank predicts that in 2026, the financial services and education sectors are expected to be the main drivers of office demand. However, with a citywide vacancy rate still as high as 17.5%, in the face of large existing stock and fierce competition, overall rents are expected to decrease by around 3%. Prime properties in the core business districts are expected to stabilize first, while non-core areas will continue to face pressure. In terms of the retail market, Knight Frank predicts that the retail sector in 2026 will continue to benefit from large events and the convenience of cross-border tourism policies. Leasing demand will be driven by wealth management and financial services brands entering core streets, as well as non-local retailers entering the market. With the rise in consumer confidence, prime street shop rents are expected to record a steady increase of 3% to 5%. Additionally, the market will see approximately 1.95 million square feet of new supply, including several large integrated development projects in West Kowloon Station and Kai Tak.