Interest Rate Cuts Fuel Leasing and Investment Momentum

Buoyed by easing interest rates and a more stable macroeconomic outlook, activity across office, retail, industrial, and investment sectors is picking up, albeit unevenly, according to CBRE’s Hong Kong 2025 Q3 Market Review. 

“Hong Kong’s commercial real estate market continued its cautious recovery in Q3 2025, supported by sustained growth in a few key economic indicators and improving demand from office and retail occupiers. As leasing and end-user purchase demand strengthened, there was evidence of higher transaction volumes. Despite ongoing challenges such as high vacancy and shifting occupier needs, the city’s commercial real estate landscape is adapting, with landlords, investors, and occupier recalibrating strategies to capture emerging opportunities. A strong IPO and events pipeline are expected to further support the city’s economic recovery through the remainder of this year and into 2026,” said Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong.

Review and Commentaries 

Grade A Office 

• Leasing activity improved with gross leasing volume increasing 25% q-o-q to 1.3 million sq. ft., bringing the y-t-d volume to 3.2 million sq. ft., marking a decline of 12% y-o-y and accounting for 73% of the full-year figure for 2024.
• Citywide net absorption reached 691,800 sq. ft., the highest quarterly total since Q3 2018. All major submarkets saw positive net absorption; the first time this has occurred since Q2 2015.
• Central reported 138,000 sq. ft. of the net absorption, the highest since Q2 2015, with only nine buildings recording a decline in occupancy. In contrast, Hong Kong East recorded 25,500 sq. ft., the lowest net absorption of any major submarket. Although both Hong Kong East and Kowloon East saw positive net absorption this quarter, their YTD figures remain negative.
• Positive net absorption helped offset the 409,600 sq. ft. of unleased space added by a new building. This ensured vacancy fell 0.3-ppt to 17.1%, the largest quarterly decline since Q3 2018.
• Vacancy remained high and contributed to a 0.7% q-o-q drop in rents, bringing the y-t-d decline to -3.4%. All major submarkets reported rental declines this quarter, except for Greater Tsim Sha Tsui.

Ada Fung, Executive Director, Head of Leasing & Consulting, CBRE Hong Kong: “Hong Kong’s Grade A office market continued its recovery in Q3 2025, with leasing momentum strengthening across all major submarkets. Notably, this quarter marked the first time since Q2 2015 that every submarket saw positive net absorption. Central led the way with 138,000 sq. ft. of net absorption, the highest quarterly figure in a decade, as occupiers took advantage of attractive rental levels to upgrade or relocate. While some tenants remain cautious due to elevated vacancy rates, particularly in decentralised areas, the market is gradually recalibrating.”


Retail 

• Total retail sales in August rose by 3.8% year-on-year, the fourth consecutive month of year-on-year growth.
• Retail leasing volume strengthened on a q-o-q basis in Q3 2025 on the back of accelerating retail sales growth. Total retail sales in July and August combined rose by 2.8% y-o-y, the fastest increase since Q4 2023, thanks to stronger growth in visitor arrivals, which rose by 13.9% y-o-y over the same period.
• F&B groups remained active, with new requirements mainly coming from Chinese restaurants. Thanks to the rebound in clothing and footwear sales, mid-tier fashion brands also displayed stronger leasing demand.
• Leasing from pharmacies softened after brisk activity in Q2 2025, while most other trades remained relatively inactive.
• Much of the leasing activity this quarter occurred in properties outside of CBRE’s basket. Vacancy edged up by 0.9-ppt q-o-q to 8.0%, with only Central reporting a slight decrease in vacancy.
• Higher vacancy rates meant rents edged up by 0.5% q-o-q, slightly slower than the 1.0% growth seen in Q2 2025. This brought y-t-d growth to 2.4%.

Lawrence Wan, Senior Director, Head of Retail Leasing, CBRE Hong Kong: “Retail leasing momentum accelerated in Q3 2025, as supported by a rebound in retail sales and a steady increase in visitor arrivals. F&B operators remained active, with Chinese F&B groups leading new leasing demand. Mid-tier fashion brands also demonstrated strong interest, reflecting a broader improvement in retailer sentiment. Moving forward, leasing demand is expected to remain robust in core districts, particularly along Tier I high streets. Attractive rental levels will continue to attract overseas and mainland Chinese brands, as well as F&B groups, to Hong Kong. Meanwhile, experiential and wellness-focused concepts are gaining traction and expanding across various districts.”


Industrial  

• Aggregate trade increased by 14.2% year-on-year in July and August combined, building on the 12.5% year-on-year growth recorded in H1 2025. However, container throughput declined by 8% year-on-year, but airfreight volume rose by 4.8% during the same period.
• Leasing momentum remained subdued as occupiers proceeded with caution amid ongoing global trade uncertainty. Leasing volume reached 1.8 million sq. ft. y-t-d, representing just 55% of full-year volume for 2024.
• Warehouse vacancy increased 1.4-ppt q-o-q to 11.8%, a record high as tenants continued to implement cost-saving strategies. Mounting vacancy pressure prompted landlords to lower rents to remain competitive.
• Overall warehouse rents continued to decline, falling by 3.7% q-o-q. This brought the y-t-d decline to 6.5% and the drop from the peak achieved in Q4 2023 to 10.9%.

Samuel Lai, Executive Director, Head of Industrial & Logistics, CBRE Hong Kong: “Geopolitical tensions and uncertain trade policies continue to weigh on Hong Kong’s industrial and logistics market. Logistics occupiers remain cautious and focused on cost-saving strategies, which are driving leasing activity in the short term. While expansionary demand is limited, emerging sectors are showing resilient interest. Warehouses offering greater operational efficiency and competitive rental rates are seeing the strongest demand, as companies seek to optimise costs. Tenants are also prioritising facilities with modern specifications that support automation and technological upgrades to enhance productivity.”


Investment

• The U.S. federal funds rate was cut by 25bps on September 17, leading to a 12.5bps reduction in Hong Kong’s Best Lending rate to 5.125%-5.375%. However, the 1M-HIBOR rose sharply from 0.73% on June 30 to 3.54% on September 30, owing to less abundant liquidity. As a result, negative yield carry conditions returned across various commercial property sectors.
• Total investment volume (deals involving commercial real estate over HK$77 million) fell by 9% quarter-on-quarter to HK$8.6 billion, bringing the YTD total to HK$24 billion, representing only 56% of the full-year total for 2024.
• Despite the decline in investment volume, the number of transactions increased by 94% quarter-on-quarter to 33. 
• End-users remained active, accounting for 34% of total investment. Major deals included the Employees Retraining Board buying six floors at First Group Centre in Kowloon Bay for HK$478 million.
• Investors continued to show interest in hotel and single-owned residential assets with student hostel conversion potential on the back of favourable government policies and the existing supply-demand imbalance.

Reeves Yan, Executive Director, Head of Capital Markets, CBRE Hong Kong: “For Q3 2025, end-users remained active, accounting for 34% of total investment volume which were all in office and retail sectors. Local investors demonstrated a solid interest in hotel and single-owned residential properties. Property funds are also returning to the market, specifically targeting student hostels conversion opportunities. Looking ahead, commercial real estate investors are anticipated to maintain a cautious approach due to the continued elevated HIBOR. Investment activity will primarily be driven by end-user demand and financially stressed owners who need to sell assets to meet their loan obligations.