Lafarge: Limited supply of new office buildings in Hong Kong in 2026, rental declines are expected to gradually narrow, the market is expected to move towards a "soft landing"

The latest "Hong Kong Monthly Property Market Report" released by Leung Fong points out that prime Grade A office spaces in Central continue to attract strong demand, driven mainly by the financial services industry and the trend of pursuing high-quality commercial buildings and expansion needs. In the past 12 months, rents for prime Grade A offices in Central have increased by about 10%, with a vacancy rate close to zero for Grade A offices, benefiting the traditional Central office market. Looking ahead, with limited new office supply expected in 2026, rent declines are expected to gradually narrow, and the market is expected to move towards a "soft landing." Office leasing activities in West Kowloon and Quarry Bay have also shown signs of recovery, especially in newer and high-quality office spaces. Multinational corporate tenants are not only optimizing their scale but also upgrading to higher quality office spaces, reflecting the continuous transformation of tenant demand and further strengthening the market's pursuit of high-quality office spaces. In April, office leasing activities were mainly driven by lease renewals and lease restructurings, especially in the information technology and electronics industries. Tenants are also locking in advantageous conditions at low rent levels, reflecting that office rents in Kowloon are approaching the bottom, with narrowing rent incentives for lease renewals in various areas, indicating a gradual improvement in market sentiment. From January to April this year, there were 8,146 transactions in the Hong Kong primary residential market (up 47.8% since the beginning of the year), with a total of 26,022 transactions (up 45.5% since the beginning of the year). Investment demand has significantly increased, driven mainly by mainland buyers, focusing on university networks and emerging areas with development potential. Overall, the market's positive momentum is based on increased buyer interest due to continual tightening supply, along with the competitive tax system in Hong Kong and the inflow of capital attracted by the free flow of funds. The residential leasing market remains active, supported by strong demand from mainland families and multinational corporate relocations, as well as tight supply, with transactions mainly driven by lease renewals. Hong Kong's retail sales have maintained an upward trend for ten consecutive months, with a 12.8% year-on-year increase in sales in March, mainly driven by strong demand for cars and luxury goods. The high-end retail leasing activity also shows a continued improvement in market sentiment. With ongoing support from local and mainland demand, the luxury goods sector, especially gold-related products, is expected to continue to lead. In contrast, price-sensitive retailers may shift towards online sales to save on operating costs due to rising rental costs. As traveler preferences shift towards cultural experiences, retailers are becoming more cautious in expanding their business, focusing more on integrating cultural and experiential elements rather than pursuing scale expansion. It is expected that prime street shops and large shopping centers will continue to outperform the overall market.