Commercial Real Estate Market Remains Stable Amid Cautious Optimism

CBRE today released its Hong Kong’s Market Review for the first half of 2025, highlighting a cautiously optimistic outlook as the market shows early signs of stabilization across key sectors.

“As we reach the midpoint of 2025, amid global geopolitical uncertainties, Hong Kong’s commercial real estate market continues to navigate ongoing economic headwinds, with leasing and investment remained weak. That said, interest rate plunge has reduced borrowing costs. Hong Kong’s strong IPO and event pipelines, coupled with improved capital availability, will likely support sustained economic recovery in the second half of 2025.” said Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong.

Review and Commentaries 

Grade A Office 

• Leasing momentum remained largely stable in Q2 2025, with gross leasing volume contracting by 3% quarter-on-quarter to 885,500 sq. ft. This brought the total volume for H1 2025 to 1.8 million sq. ft., a decline of 30% year-on-year and representing only 41% of the full-year total for 2024.
• Citywide net absorption recovered to 147,700 sq. ft. after two quarters in negative territory. The H1 2025 total was -111,400 sq. ft., well down on H1 2024’s 1.0 million sq. ft. Positive net absorption was concentrated in core submarkets. Greater Central reported a gain of 155,400 sq. ft., bringing its H1 2025 total to 186,000 sq. ft., the strongest half-year figure since H2 2015.
• Net absorption in Hong Kong East logged -43,900 sq. ft., partly driven by downsizing in North Point, the weakest submarket. Kowloon East remained in negative territory for the fourth consecutive quarter, registering -273,100 sq. ft. in H1 2025, a record low for a half-year.
• The lack of new supply combined with positive net absorption ensured overall vacancy fell by 0.1 percentage points to 17.4% in Q2 2025. However, this is still up from the 16.9% seen six months ago.
• Overall rents dropped at a slower pace, falling by 0.6% quarter-on-quarter and 2.8% year-to-date. Rents in Central remained stable quarter-on-quarter, making it the only major submarket without a decline in Q2 2025. All major submarkets registered rental declines in H1 2025. 

Ada Fung, Executive Director, Head of Advisory & Transaction Services, CBRE Hong Kong: “Hong Kong’s Grade A office market continued to slow in terms of leasing momentum in H1 2025, despite a continuous improvement in Central. Q2 2025 saw new leasing volume in Central registered the highest level in a quarter since Q2 2015, supported by a major pre-commitment deal. Improvement in financial market sentiment and Hong Kong’s strong IPO pipeline will see sustained deal flows in and around the CBD in H2 2025. However, citywide vacancy rates remained high, particularly in decentralised areas, as occupiers continued to optimise space usage. Overall rents are expected to remain on a downward trend in H2 2025”


Retail

• Retail leasing momentum was slower in Q2 2025, compared with H2 2024. While retailers remained largely cautious through the period, total retail sales declined at a slower pace and reversed the downward trend in May 2025.  
• F&B groups leased a total of 134,000 sq. ft., the highest since 2009, a few gold stores and jewellery dealers exhibited mild expansionary demand. Requirements from pharmacies picked up over the quarter, partly fuelled by double-digit growth in visitor arrivals. 
• Vacancy across core districts declined by 0.7 percentage point to 7.1%. The vacancy rate in Central remained stable at 6.6%, while vacancy in Causeway Bay increased by 1.3 percentage points to 6.6%. Vacancy rates in Tsim Sha Tsui and Mong Kok fell by 1.4 percentage points to 12.9% and 1.8 percentage points to 5.1% respectively. 
• Lower vacancy rates contributed to 0.9% quarter-on-quarter increase in rents, matching the pace observed in Q1 2025. This brought the half-yearly growth to 1.9%

 

Lawrence Wan, Senior Director, Head of Advisory & Transaction Services – Retail, CBRE Hong Kong: “The retail market remained stable in the first half of 2025, despite mixed signals from both store closures and new openings. With tourist arrivals and footfalls displaying sustained recovery and overall retail sales gradually stablising after over a year of declines, some retailers are approaching the market with cautious optimism. Leasing demand in the core districts was largely healthy and occupancy is gradually improving. This tightening in availability continued to support mild rental growth in the tier-1 high streets.  Looking ahead into H2 2025, retail leasing is expected to remain stable as domestic consumption and tourist foot traffic improve. Demand will primarily be driven by F&B operators catering to the mass- and mid-market segments. Retailers offering affordable goods and services aimed at the local community will comprise a sizable portion of demand for retail space.”


Industrial 

• Uncertainties towards the global trade market outlook has caused logistics operators and traders to turn cautious in H1 2025. Leasing demand weakened noticeably. New leasing volume stayed slow for a second consecutive quarter, making the 1.18 million sq. ft. registered for H1 2025 the lowest for a half-yearly period since H1 2015
• While leasing activity was primarily driven by relocations combined with potential downsizing, 100,000 sq. ft. at Cainiao Smart Gateway in Chek Lap Kok was leased, while a total of 92,000 sq. ft. in China Merchants Logistics Centre in Tsing Yi was leased, partly for the storage of metals for the London Metal Exchange. 
• Warehouse vacancy increased by 0.4 percentage point quarter-on-quarter to 10.3%.
• Prolonged and elevated vacancy contributed to a 0.8% quarter-on-quarter decline in warehouse rents over the quarter, the sixth consecutive quarterly drop and bringing the year-to-date decline to 2.9% as of end of H1 2025.

Samuel Lai, Executive Director, Head of Advisory & Transaction Services – Industrial & Logistics, CBRE Hong Kong: “Escalating geopolitical tensions and uncertain trade policies in the first half of 2025 prompted a more cautious approach from warehousing occupiers. We observed a sharp decline in leasing demand, leading to increased availability of space in the market. Leasing activity was largely driven by relocations, often accompanied by potential downsizing. This resulted in escalated vacancies and weighed on rents, which declined by 2.9% as of the end of H1 2025. While overall sentiment is expected to remain cautious in the short-term, Hong Kong which is approved as a delivery point for the London Metal Exchange, will see an increasing demand for high-spec warehouses for metal storage in addition to the four facilities already approved to date.”


Invesment 

• The one-month HIBOR decreased from 3.73% on 31 March 2025 to 0.72% on 30 June 2025 amid the weakened Hong Kong dollar, despite Hong Kong’s Best Lending Rate being unchanged at 5.25% - 5.50%. However, lower rates failed to spur a significant jump in investment demand. While investment volume improved over the quarter, it was mainly underpinned by a single sizable deal.
• Total investment volume (deals involving commercial real estate over HK$77 million) increased 45% quarter-on-quarter to HK$8.7 billion in Q2 2025. However the total of HK$14.7 billion reached in H1 2025 was just 34% of the full-year total for 2024. Notable transactions in Q2 2025 included Hong Kong Stock Exchange purchasing multiple floors in One Exchange Square from Hongkong Land for a total of HK$6.3 billion for self-use; a deal which accounted for 73% of the quarter’s total investment value. Another major deal saw a mainland investor completed the en-bloc purchase of PARK AURA for HK$650 million for self-use. End-users accounted for 84% of total investment value during the quarter. 
• Despite the quarter-on-quarter increase in total investment volume, only 16 deals were recorded in Q2 2025, the lowest since Q4 2008. Half involved financially stressed assets indicating that some sellers remain under pressure and are struggling to fulfil loan covenants. 
• During the quarter, the government announced that it would launch a pilot scheme in July 2025 to relax planning rules for landlords seeking to convert offices and hotels into student accommodation. However, no hotel transactions were recorded during the quarter. 

Reeves Yan, Executive Director, Head of Capital Markets, CBRE Hong Kong: “Amid ongoing economic headwinds, investors adopted a cautious, wait-and-see approach, and the lower HIBOR provided only limited support. However, sentiment showed signs of stabilisation, particularly with increased enquiries from end-users, triggered by the continuous decline in capital values and reduced cost of borrowing. Investment momentum is anticipated to gradually improve in H2 2025, subject to the HIBOR remaining low. As banks increase their exposure to financially distressed loans, the availability of discounted assets will improve. Combined with lower interest rates, this should encourage more purchases from end-users and long-term investors. Following the Government’s recent announcement of a pilot scheme to streamline hotel-to-dormitory conversions, we expect to see a noticeable uptick in interest from hotel owners and office landlords exploring such opportunities.”