FIRST PACIFIC Davis: It is expected that prime office rents in Central and Tsim Sha Tsui in Hong Kong will increase by 5% to 7% this year.

The latest Hong Kong office leasing market report for February 2026, released by international real estate consultant FIRST PACIFIC Davis, pointed out that Grade A office buildings in Hong Kong saw a clear selective recovery in 2025. The market experienced strong absorption on one hand, but on the other hand, there was a clear polarization in terms of location and property quality. The total net absorption for the whole year of 2025 reached 1.8 million square feet, with Central, Kowloon Station International Trade Plaza, and IGC accounting for six-tenths of the absorption, reflecting the strong demand from tenants for high-quality, integrated office parks. Although the overall vacancy rate reached a historic high of 15.5% in December 2025, detailed data showed that the leasing rate for Grade A properties in Central remained stable, in stark contrast to the high vacancy rate and oversupply in Kowloon East. Looking ahead to 2026, with the slowdown in new supply and continued expansion of the financial sector, prime office buildings in Central and Tsim Sha Tsui are expected to see a rental rebound of 5% to 7%, while secondary locations and other areas continue to face downward pressure. In 2025, the Grade A office market saw a net absorption of approximately 1.8 million square feet, reversing the previous trend of contraction. Central accounted for about 470,000 square feet, while ICC and IGC at Kowloon Station absorbed about 620,000 square feet, reflecting the focus of capital and businesses on landmark, transportation hub, and high-standard buildings. The overall vacancy rate reached approximately 15.5% in December 2025, but the vacancy rate in Central fell by 1.9 percentage points to about 11.3%, indicating a further consolidation of its safe haven status; on the other hand, the vacancy rate in Kowloon East rose to about 24.5%, indicating structural oversupply and a shift in tenant preferences. Hedge funds, asset and wealth management companies, quantitative funds, and market makers saw an increase in leased area by about 14% year-on-year, driving leasing activities in core areas; large deals included Qube expanding by about 146,000 square feet in International Financial Center Phase 2, and a large financial technology company moving into Central Yards with about 223,000 square feet, marking one of the largest core office leasing transactions in over a decade. The leasing rate of top-grade Grade A office buildings in Central (including International Financial Center Phase 2, Cheung Kong Center, and The Henderson) remained at over 88%, while secondary buildings in the same area struggled to reach 75%. Properties such as Harbour City Office Tower in Tsim Sha Tsui and K11 Atelier in Victoria Dockside also showed strong leasing interest, clearly reflecting a trend of increasing differentiation between high-quality properties and weaker ones. The firm predicts that prime Grade A office rents in Central and Tsim Sha Tsui will rise by about 5% to 7% in 2026; other areas such as Central, Admiralty, and Tsim Sha Tsui are expected to see a moderate rebound of 0% to 3%, while other regions are expected to face a rental decline of about 5%. From 2026 to 2032, Hong Kong's annual addition of office supply is only about 600,000 square feet, much lower than the average of about 2 million square feet per year from 1996 to 2025. Limited supply will support the medium to long-term performance of core area rents. Wilson Tang, Director of Research and Consulting at FIRST PACIFIC Davis, said: The overall vacancy rate may be at a historic high, but when broken down by different regions and property levels, the market has actually entered a new stage of selective recovery. Top-grade Grade A office buildings in core areas are maintaining high leasing rates driven by the financial sector, while some oversupplied secondary locations need to adjust rents and reposition themselves to regain competitiveness. Leo Lau, Managing Director and Head of Leasing Department at FIRST PACIFIC Davis Hong Kong, believes that current office tenants are generally adopting a strategy of upgrading to more convenient transportation, better amenities, and higher-quality buildings when rents have significantly declined from their peak levels. This round of adjustments is not only a cost consideration but also reflects companies' desire to enhance brand image and employee experience through office environment. It is expected that core properties in Central and Tsim Sha Tsui will continue to be the top choices for international and local companies. Raymond Yiu, Senior Director at FIRST PACIFIC Davis Kowloon Commercial Leasing Department, further noted: The recovery of the Hong Kong office market is driven by three main factors: first, the continuous expansion driven by hedge funds and asset/wealth management companies with assets under management of HK$35.1 trillion in Hong Kong; second, industries such as insurance and private wealth with attractive investment opportunities continue to have strong demand; and finally, the significant increase in non-local student numbers driving education institutions to actively lease, becoming another important supporting force.