Knight Frank: Hong Kong residential transaction volume increased by 18.3% year-on-year last year, inventory pressure has eased somewhat

Knight Frank released the latest "Hong Kong Quarterly Property Market Report," indicating that the office market on Hong Kong Island will continue to show significant differentiation in various districts in 2025. In the Kowloon office market, overall relocation intentions remain weak, with transaction volumes primarily supported by lease renewals. Although the issue of residential inventory persists, the related pressure has eased compared to previous years. The Hong Kong retail market is also showing initial signs of stabilization; however, in 2025, the retail market will still face competitive pressures from cross-border consumption and online sales.

In the residential property market, the transaction volume in Hong Kong is expected to rise by 18.3% year-on-year in 2025. New developments continue to be in high demand, accounting for 33% of total transaction volume, surpassing the five-year average of 27%. The luxury property market remained strong in the fourth quarter of 2025, recording 81 transactions with prices exceeding HKD 78 million, a quarterly increase of 45%. In addition to stable demand from mainland buyers, participation from overseas buyers has also significantly increased.

Residential inventory continues to be a focus, but the pressure has eased compared to the past. As of December 2025, there are approximately 11,250 unsold units, a significant decrease from 17,530 in June 2025. With improved market sentiment and willingness to enter the market, developers are adopting more cautious strategies to launch new projects closer to market prices and selectively replenish land reserves. The cautious deployment by developers helps stabilize market confidence and gradually restore balance to the residential market.

As for Grade A office space, by the end of 2025, the office market on Hong Kong Island will continue to show significant differentiation. The leasing situation for quality Grade A offices is accelerating, with overall core Central rental rates rising by 3% year-on-year in 2025. On the other hand, a large amount of new office supply is expected in 2026, coupled with existing vacant supply, which will continue to drag down the performance of traditional Central offices and those in other districts. Among them, the performance of traditional Central, Causeway Bay, and Quarry Bay offices is notably lagging.

Landlords are offering flexible leasing terms, including adjustments to rent and other non-rent incentives. In this context, tenants have more advantages in lease renewal and new lease negotiations and tend to remove or relax restrictive clauses in leases.

In the Kowloon office market, leasing activity significantly weakened in the fourth quarter of 2025, especially in December, affected by holidays and delays in corporate decision-making. Overall relocation intentions in the office market remain weak, with market transaction volumes primarily supported by renewal demand. The performance of offices in Tsim Sha Tsui outperformed the overall Kowloon area, with demand mainly driven by the banking, finance, and insurance sectors. As there is expected to be no large new supply in the short term, the market will have the opportunity to gradually absorb existing vacancies.

The Hong Kong retail market is showing initial signs of stabilization. In 2025, the retail sector continues to face competitive pressures from cross-border consumption and online shopping. Looking ahead, as retail consumption gradually recovers and tenant mix becomes more diverse, core street shop rents are expected to record a growth of 5% to 10%. The outlook is supported by factors such as street shop visibility, demand from mainland travelers, and limited new supply