Valuer Insights
Office Rateable Values: A Call for Ratepayer Action
By Valuation and Advisory Services
April 10, 2025
Contact
Shana L. Lam
Executive Director, Valuation & Advisory Services, Hong Kong
Aside from the recent lowest rates concession allowed for taxpayers as previously announced in the 2025/26 Budget Speech, the Rating and Valuation Department (“RVD”) recently unveiled the Summary Statistics on the Valuation List and Government Rent Roll for Rate Year 2025/26. Hidden within this data resides a noteworthy trend that warrants deeper examination.
Amid the recent news and transactions that shed light on the market downturn in office sector, ratepayers have anticipated a certain extent of decrease in Rateable Values (“RV”) for Rate Year 2025/26. Nevertheless, RVD’s data are contrary to these expectations. RV assigned to office tenements have not only remained high but, in some cases, have even increased. This incongruity raises critical questions about the fairness of the current assessments and underscores the urgent need for ratepayers to consider lodging objections.
Upward Trend in Office RV
In the context of the 2025/26 Rate Year, there are approximately 80,000 office assessments, collectively attributing a total office RV estimated at HK$ 73.5 billion. Of particular significance is the fact that 50.9% of these assessments are geographically situated on Hong Kong Island, which accounts for a substantial 62.3% of the overall office RV, or about HK$ 45.8 billion. Key districts for office use on Hong Kong Island include the Central and Western District and Wan Chai, with respective RV of HK$ 26.3 billion and HK$ 11.9 billion, constituting 35.8% and 16.2% of Hong Kong’s total office RV.
It is essential to highlight the variances in RV relative to the previous Rate Year. The total RV had ascended from HK$ 73.0 billion to HK$ 73.5 billion, reflecting a rise of 0.7%. On Hong Kong Island, the RV per office tenement had experienced a slight diminution of 3.1%, with declines of 4.4% in the Central and Western District, 2.3% in Wan Chai, and 1.7% in Southern Hong Kong Island. Conversely, the RV per office tenement in Eastern Hong Kong Island has increased by 2.1%, notwithstanding the prevailing contractions within the office rental market. To ascertain the equity of these RV assessments, it is crucial to engage in a rigorous evaluation of whether the fluctuations in RV correspond with the substantive reductions in office rents.
Office Rent Under Pressure
From Q4 2023 to Q3 2024, the overall Grade A Office Net Effective Rent in Hong Kong Island rent underwent contraction of 4.4%. Significant reductions in rents were evident in Greater Central – Central, Admiralty, and Sheung Wan, where declines oscillated between 3.8% to 7.8%. The extent of these rental reductions exceeds the average 4.4% decrement in the RV per office tenement in the similar catchment area as denoted by RVD’s zone. In Wong Chuk Hang and Hong Kong East, the net effective rent declined by approximately 6.4% during the same period. This downward trend is inadequately reflected by the 1.7% decrease and 2.1% increase in the RV per office tenement in Southern and Eastern Hong Kong, respectively. The crux of the issue lies in the misalignment between the declining rental values and the change in RVs. As market conditions shift and rents decline, one would expect a corresponding adjustment in RV assessments. Nevertheless, the data suggests that the decline in RV is relatively modest compared to the decline of achievable rents, potentially due to the limitation of RV assessment.
Face Rent vs Effective Rent
In tenancy agreements, landlords frequently extend a variety of incentives and flexible clauses to tenants, which are typically being documented in confidential side letters. These may include rent-free periods, license periods, and flexibility clauses such as options to renew, surrender rights, break clauses, and no reinstatement clauses. While these rights confer substantial advantages to the tenant, they are typically excluded from the hypothetical lease under the Rating Ordinance (Cap. 116), necessitating their exclusion to arrive at effective unit rents. However, it is usual for the RVD’s assessments to overlook these incentives and flexibility clauses. The ramifications of this oversight are significant, resulting in inflated RVs that may not accurately reflect the economic realities faced by landlords. Should those incentives and clause be taken into account to arrive at the net effective rent, there would be a compelling basis to argue for a lower RV.
A Call to Action for Ratepayers
In light of these considerations, it is evident that the organic reduction in RV per office tenement on Hong Kong Island is insufficient to accurately reflect the extent of the decline
in market rents. Ratepayers must recognize that the RV for offices may be assessed at a level that exceeds the proper value, thereby unjustly inflating their tax liabilities. This can be particularly detrimental during a period of decreasing rental income. While no rates savings will be made automatically, ratepayers are sternly encouraged to consider lodging objections for a fairer evaluation. This proactive step will safeguard their interests and ensure an equitable assessment of the RV by the statutory deadline of May 31.
Amid the recent news and transactions that shed light on the market downturn in office sector, ratepayers have anticipated a certain extent of decrease in Rateable Values (“RV”) for Rate Year 2025/26. Nevertheless, RVD’s data are contrary to these expectations. RV assigned to office tenements have not only remained high but, in some cases, have even increased. This incongruity raises critical questions about the fairness of the current assessments and underscores the urgent need for ratepayers to consider lodging objections.
Upward Trend in Office RV
In the context of the 2025/26 Rate Year, there are approximately 80,000 office assessments, collectively attributing a total office RV estimated at HK$ 73.5 billion. Of particular significance is the fact that 50.9% of these assessments are geographically situated on Hong Kong Island, which accounts for a substantial 62.3% of the overall office RV, or about HK$ 45.8 billion. Key districts for office use on Hong Kong Island include the Central and Western District and Wan Chai, with respective RV of HK$ 26.3 billion and HK$ 11.9 billion, constituting 35.8% and 16.2% of Hong Kong’s total office RV.
It is essential to highlight the variances in RV relative to the previous Rate Year. The total RV had ascended from HK$ 73.0 billion to HK$ 73.5 billion, reflecting a rise of 0.7%. On Hong Kong Island, the RV per office tenement had experienced a slight diminution of 3.1%, with declines of 4.4% in the Central and Western District, 2.3% in Wan Chai, and 1.7% in Southern Hong Kong Island. Conversely, the RV per office tenement in Eastern Hong Kong Island has increased by 2.1%, notwithstanding the prevailing contractions within the office rental market. To ascertain the equity of these RV assessments, it is crucial to engage in a rigorous evaluation of whether the fluctuations in RV correspond with the substantive reductions in office rents.
Office Rent Under Pressure
From Q4 2023 to Q3 2024, the overall Grade A Office Net Effective Rent in Hong Kong Island rent underwent contraction of 4.4%. Significant reductions in rents were evident in Greater Central – Central, Admiralty, and Sheung Wan, where declines oscillated between 3.8% to 7.8%. The extent of these rental reductions exceeds the average 4.4% decrement in the RV per office tenement in the similar catchment area as denoted by RVD’s zone. In Wong Chuk Hang and Hong Kong East, the net effective rent declined by approximately 6.4% during the same period. This downward trend is inadequately reflected by the 1.7% decrease and 2.1% increase in the RV per office tenement in Southern and Eastern Hong Kong, respectively. The crux of the issue lies in the misalignment between the declining rental values and the change in RVs. As market conditions shift and rents decline, one would expect a corresponding adjustment in RV assessments. Nevertheless, the data suggests that the decline in RV is relatively modest compared to the decline of achievable rents, potentially due to the limitation of RV assessment.
Face Rent vs Effective Rent
In tenancy agreements, landlords frequently extend a variety of incentives and flexible clauses to tenants, which are typically being documented in confidential side letters. These may include rent-free periods, license periods, and flexibility clauses such as options to renew, surrender rights, break clauses, and no reinstatement clauses. While these rights confer substantial advantages to the tenant, they are typically excluded from the hypothetical lease under the Rating Ordinance (Cap. 116), necessitating their exclusion to arrive at effective unit rents. However, it is usual for the RVD’s assessments to overlook these incentives and flexibility clauses. The ramifications of this oversight are significant, resulting in inflated RVs that may not accurately reflect the economic realities faced by landlords. Should those incentives and clause be taken into account to arrive at the net effective rent, there would be a compelling basis to argue for a lower RV.
A Call to Action for Ratepayers
In light of these considerations, it is evident that the organic reduction in RV per office tenement on Hong Kong Island is insufficient to accurately reflect the extent of the decline
in market rents. Ratepayers must recognize that the RV for offices may be assessed at a level that exceeds the proper value, thereby unjustly inflating their tax liabilities. This can be particularly detrimental during a period of decreasing rental income. While no rates savings will be made automatically, ratepayers are sternly encouraged to consider lodging objections for a fairer evaluation. This proactive step will safeguard their interests and ensure an equitable assessment of the RV by the statutory deadline of May 31.