Dempsey Property: Hong Kong's full-year property price increase may be up to 10%, raising the forecast for central office rental in the middle of the year.

Rosanna Tang, Executive Director and Head of Research at De Leung Rowland, expects that if the geopolitical situation in the Middle East can ease in the short term, the annual price increase in Hong Kong could reach 7% to 10%; if tensions escalate further, the price increase is expected to be around 5% for the year. She predicts that there may be more safe-haven funds flowing into Hong Kong, supporting the relatively low interest rates and the housing market, along with the improvement in the inquiry volume index reflecting the market sentiment and buyer intentions. Residential transaction volume is expected to reach 65,000 to 70,000 units this year. Charles Xie, Managing Director of De Leung Rowland in Hong Kong, announced that the rental forecast for Central in 2026 has been raised from a previous 2% to 4% increase to a 6% to 8% increase, which is expected to drive an annual increase of 1% to 3% in overall Grade A office rents in Hong Kong for the year. Banks and financial institutions continue to be important pillars of leasing demand, and the Middle East situation may prompt investors to reallocate some funds to Hong Kong, thereby supporting demand for industry and wealth management-related enterprises. Xie also pointed out that in the first quarter, due to no new projects being completed, the overall vacancy rate in Grade A buildings was 20%, a slight decrease of 0.3 percentage points quarterly. He believes that as the market slowly digests the supply over the next 2 to 3 years, the vacancy rate will gradually decrease. He also mentioned that in a "turning market", some projects with vacancy rates below 5% have bargaining power. Regarding retail spaces in core areas, the bank maintains its prediction of a mild increase in overall rents of 2% to 3% in the first half of 2026, but expects a 1% to 3% decrease in rents for the food and beverage industry. Xie expects Central and Causeway Bay to lead the recovery, while Tsim Sha Tsui and Mong Kok will require reasonable asking prices from landlords, and vacant units will continue to be taken up. Although the outlook for the Hong Kong retail market is optimistic, core area rents are only expected to see a moderate and steady increase, constrained by structural changes in customer consumption patterns.