Hong Kong office leasing rebound lifts outlook for 2026, but rents remain under pressure

Hong Kong’s battered office sector showed cautious signs of life in 2025, supported by improved take-up in core districts and a slower pace of rental declines and –. while analysts said that trend was set to continue into 2026 – rents were unlikely to rise over the next six months.\nThe coming year was expected to build on the market’s momentum, with stabilisation emerging as the dominant theme, analysts said.\nVacancy rates in prime assets in core districts were likely to steady further, but elevated supply meant landlords might have to wait at least six months before a sustained rental recovery.\n“The Hong Kong office market is showing definitive signs of recovery,” said Kathy Chan, an equity analyst at investment research firm Morningstar. “A revitalised initial public offering market has bolstered the financial and professional services sectors, driving office leasing activity to levels that surpass the annual totals of both 2019 and 2024.”\nThe improvement in 2025 was reflected in stronger net absorption in key districts, the smallest full-year rental decline since 2019 and increased investment activity, according to CBRE. Hong Kong recorded 2.1 million sq ft of net absorption for the full year, the largest annual total since 2018, the consultancy said.\nCentral led in the fourth quarter, recording 234,800 sq ft of net absorption, its highest since the second quarter of 2015. The full-year figure reached 496,000 sq ft, the strongest annual total since 2007, CBRE said in a report released on Monday.\nTsim Sha Tsui also posted robust demand, with 626,000 sq ft of net absorption during the year and a full-year figure of 845,000 sq ft, a record high, the consultancy said.\n“Central and Tsim Sha Tsui will continue to outperform decentralised submarkets, supported by robust demand from wealth management and other investment businesses,” said Marcos Chan, head of research at CBRE Hong Kong. “Buildings in these two submarkets with lower vacancies will likely see rents edging up a few percentage points in 2026.”\nCentral recorded several notable leasing transactions in 2025.\nIn June, US quantitative trading firm Jane Street Asia agreed to pay a monthly rent of HK$30.6 million (US$3.93 million), or HK$137 per square foot, for a 223,437 sq ft office at Central Yards, Henderson Land’s nine-storey building at its mixed-use development at the New Central Harbourfront.\n\nIt was the largest prime office leasing deal in Central, according to JLL, which has tracked data since 2001.\nGlobal investment firms also expanded in the city. Chicago-based Adams Street Partners opened an office at Nexxus Building on Connaught Road in November. Paris-based Ardian opened a 4,000 sq ft office in Central’s Two International Finance Centre in October, citing an ambition to grow its roughly US$3 billion in investments from Hong Kong-based clients.\nFor 2025, overall office rents fell 2.9 per cent year on year, the smallest full-year decline since 2019, CBRE said.\nCentral rents were broadly flat, while Tsim Sha Tsui recorded growth of 2.9 per cent. By contrast, Hong Kong East and Kowloon East posted the steepest declines, down 10.5 per cent and 7.9 per cent, respectively.\n“Decentralised office submarkets will continue to face heavy vacancy and rental pressures, giving tenants the upper hand,” Chan said.\nVibrancy in Hong Kong’s financial markets has prompted more global investment companies to expand in the city and encouraged mainland Chinese firms to acquire office space for the purpose of setting up headquarters, Chan added.\nIn October, Alibaba Group Holding and fintech affiliate Ant Group bought several floors in Mandarin Oriental International’s One Causeway Bay office tower being developed on the former Excelsior Hong Kong hotel site.\nThe HK$7.2 billion purchase – covering 301,555 sq ft comprising the top 13 floors of the 24-storey building, plus 50 parking spaces and signage rights – marked the city’s largest real estate transaction since 2021. Alibaba owns the Post.\nIn April, Hong Kong Exchanges & Clearing acquired the top nine floors and some retail space on the podium of One Exchange Square in Central from Hongkong Land for HK$6.3 billion.\n“The investment demand improved significantly in the fourth quarter of 2025,” said Reeves Yan, head of capital markets at CBRE Hong Kong. “Corporate end users and educational institutions are the key drivers for the office sector. Hotels and residential buildings are popular with investors for student accommodation conversion.”\nHowever, Yan said interest rate cuts had not materially shifted pricing.\n“The rate cuts seem to have limited impact on pricing. The supply trend, high vacancy and funding gap remain the major obstacles to a recovery in capital values,” he said.\nLooking ahead, analysts expected incoming supply to keep rents capped in the near term. With about 1.4 million sq ft of new prime office space due for completion in 2026, the market was likely to need time to absorb existing vacancies.\n“With vacancy rates remaining elevated, rents are likely to require another six to 12 months to bottom out as excess supply is absorbed,” Morningstar’s Chan said. “We expect core central business district office assets to lead this recovery, fuelled by a persistent ‘flight to quality’ trend.”\nGrade A office rents in core districts were forecast to be broadly flat in 2026, said Jieqi Liu, a senior property analyst at UOB Kay Hian. Non-prime assets, however, were likely to see rents decline further by 2 per cent to 3 per cent on an annual basis, Liu said.\nNon-prime assets, however, were likely to see rents decline further by 2 per cent to 3 per cent on an annual basis, Liu said.\n