Le Fang: The Hong Kong office market is gradually showing clear polarization, with high-quality assets in Central and Sheung Wan performing better.

The report released by Knight Frank points out that the office market on Hong Kong Island is gradually showing clear polarization, with prime Grade A offices in Central benefiting first from the rise in leasing demand; on the contrary, non-core areas and secondary offices are still facing continuous downward pressure. The report shows that there are signs of recovery in the leasing market for prime offices, mainly due to the increase in demand from mainland IPO activities, expansion of financial services industry, and market liquidity improvement. By 2025, the new lease area for some industries has surpassed the area for lease renewals, reflecting rising tenant confidence, especially for prime offices. Kenneth Kwan, Executive Director and Head of Commercial Property Services Department in Hong Kong, said that Hong Kong is continually strengthening its role as a high-trust capital and global financial hub. Recent leasing activities in prime Grade A offices in Central and West Kowloon are gradually increasing, and it is expected that office demand in this market will further rise this year. The trend of polarization in the market is expected to continue. Prime Grade A offices located in core business districts with modern standards and complete facilities continue to attract stable rental demand and businesses looking to upgrade or relocate; on the other hand, older or non-core Grade A offices face greater market pressure due to their limited facilities, lower floor efficiency, and lack of attractive locations, further widening the performance gap with prime assets. Mainland Chinese companies' demand is gradually becoming a driving force for office leasing in Hong Kong, mainly benefiting from the resurgence of IPO activities and the continuous expansion of professional and financial services. This demand has a wide-ranging impact on the market, covering not only large corporate users but also frontline operational units focused on customer and business expansion. Karen Lee, Manager of Commercial Property Services Department in Hong Kong, pointed out that Chinese companies' emphasis on the quality and geographical connectivity of offices continues to support the leasing demand for prime Grade A offices. At the same time, many technology companies and startups from the mainland are currently starting with shared office spaces in Hong Kong and planning to move to traditional offices once their businesses mature. The report also mentioned that while institutional investors remain cautious in asset deployment, some tenants are taking advantage of improved business atmosphere and significantly reduced property prices, purchasing offices for their own use. Such transactions may result in short-term vacancies in individual properties, but overall, the trend of tenants shifting from leasing to buying is gradually blurring the line between tenant and investment demand. The financial industry's related transaction activities are boosting confidence in prime Grade A offices, especially in Central. Although some companies are expected to relocate this year, releasing a certain amount of office space into the market, the tightening overall available space presents short-term opportunities for tenants. The leasing momentum in Central remains strong and is also driving leasing demand in surrounding areas, including Sheung Wan, Admiralty, and North Wan Chai. As the time for corporate relocations approaches, tenants are expanding their location choices to cope with the tightening supply situation. Jonathan Wright, Senior Director of the Commercial Property Services Department, said that market momentum is still concentrated on prime Grade A offices in Central and West Kowloon, driven by the financial industry and demand from Chinese-related companies. As large tenants gradually move, the market is creating opportunities for other tenants, not only to lease the released spaces but also to consider quality office options outside core areas. For landlords, asset optimization, additional facilities, and more flexible lease terms will help accelerate leasing speed. Looking ahead, the performance of major office districts will continue to differentiate. Prime assets in Central and Sheung Wan are leading, benefiting from robust leasing demand, declining vacancy rates, and continued market preference for high-quality, well-located offices, especially those with sea views. In contrast, areas like Admiralty, North Point, and traditional Central offices are expected to maintain stable leasing performance due to limited overall new supply. As for areas like Causeway Bay, Quarry Bay, and Wong Chuk Hang, they may face certain leasing pressure in the short term due to recent and upcoming new office supply, prompting landlords to offer more competitive incentives to attract and retain tenants.