- Smaller-sized residential units have been more sought-after following the relaxation of the maximum property value chargeable at a HK$100 stamp duty level as announced in the latest government budget speech, supporting first-hand residential sales. The total residential unit transaction number for Q1 climbed 24% y-o-y to reach 12,200 units.
- The Grade A office market recorded positive net absorption of 143,700 sf in Q1, although the high availability rate saw the overall rental level soften further by 2.5% q-o-q.
- Growing visitor arrival numbers in Q1 failed to drive up retail sales, with high-street rents across core retail districts adjusting within a +/-2% range q-o-q. However, an expected boost from the mega event economy is expected to be reflected later this year.
Following the Hong Kong government’s announcement to raise the residential property maximum value chargeable at a stamp duty level of HK$100 from HK$3 million to HK$4 million in the latest budget speech, first-time home buyers and investors were more active, resulting in a significant uptick of transactions in March from the first two months of the year. However, overall home prices in Q1 continued to trend down as interest rates stayed at a relatively higher level.
In the Hong Kong office market, the Grade A sector recorded positive net absorption in Q1, although the abundant available space continued to weigh on the rental outlook. In the retail market, the structural changes seen in tourists’ and local residents’ consumption patterns continued to curtail retail sales performance, in turn hindering retail market rental grow. However, we expect that the city’s ongoing mega event program activity will support greater visitor arrivals and consequent retail sales in the coming few quarters.
Office Market Key Takeaways
- The office market recorded positive net absorption for the sixth consecutive quarter in Q1, mainly driven by the expansion activities of the banking & finance and insurance sectors.
- Despite the improving leasing momentum, the availability rate expanded to 19.2% in Q1 due to a new completion in Kowloon East.
- Rents further declined by 2.5% in Q1, and amid the supply boom ahead, we forecast that rents will remain under pressure and are set to drop by 7%–9% in 2025.
- The recovery of IPO activities and stock market performance should help underpin market sentiment and downstream demand from the banking & finance sector.
- Some tenants may consider flight-to-quality moves to prime areas due to the more attractive rental levels, supporting the occupancy level in those submarkets.
Retail Market Key Takeaways
- Retail sales recorded a narrower decline for the January to February period, although the near-term performance of the retail sector continues to be impacted by the structural changes in consumption patterns.
- Vacancy rates in Kowloon were relatively stable, while the Causeway Bay vacancy rate recorded an increase.
- Given landlords are now more willing to offer rental discounts, more retailers are considering resuming relocation plans to superior locations.
- Chinese mainland brands will remain the key driver of new leasing demand, catering to the consumption habits and preferences of the growing population of mainland professionals and students.
- The economic stimulus measures launched by the Central government combined with the Hong Kong government’s efforts to promote tourism development are likely to boost local retail sentiment.
Residential Market Key Takeaways
- Residential market sentiment and transaction numbers strengthened after the further relaxation of residential stamp duty announced in the latest budget speech.
- Residential S&Ps in Q1 2025 rose 24% y-o-y to reach ~12,200 units, with smaller-sized units becoming more sought-after.
- Cushman & Wakefield data shows that overall mass market home prices in Q1 dropped around 1.7% q-o-q.
- The full-year 2025 residential transaction number is expected to be similar to the 2024 level.
- Home prices are expected to fluctuate within a range of 3% through 2025.
