Current State of the Hong Kong Property Market

In recent years, the Hong Kong real estate market has undergone significant fluctuations. After experiencing a prolonged peak, the market has gradually shown signs of weakness. According to the latest market data, the overall residential transaction volume is expected to increase by 22.2% in 2024 compared to the previous year, largely due to government policy adjustments and interest rate cuts. However, despite the rebound in transaction volume, property prices continue to decline, with an anticipated drop of about 6.8% in 2024. The persistent rise in vacancy rates and the unclear economic environment have had a profound impact on the market.

In the commercial property sector, leasing activities for offices and retail spaces also exhibit a polarized trend. Demand for office space in core areas remains strong, while the rental reductions for secondary street shops struggle to attract tenants. The overall vacancy rate for Grade A offices is projected to reach 13.1% in 2024, the highest in the past 25 years. This phenomenon is primarily influenced by newly completed projects, especially in major business districts like Central, where increased competition has resulted in an 8.6% decline in market rents. Nevertheless, the financial, insurance, and professional services sectors remain the main tenants in the market, with leasing demand sustaining to a certain extent.

At the same time, the retail market faces challenges to its recovery. Due to the strong Hong Kong dollar and the increase in outbound consumption, local consumer spending power has diminished, coupled with a decline in tourist spending. Core street shop rents have only risen by 1.3%, while rents in quality shopping malls have also dropped, indicating growing downward pressure on the entire market.

Challenges Facing the Market in 2025

Looking ahead to 2025, the Hong Kong property market will encounter a series of new challenges, primarily reflected in the following aspects:

First, the issue of oversupply remains severe. Although the market showed signs of recovery in 2024, the influx of numerous new developments will further intensify competition, leading to a continued rise in vacancy rates. It is expected that in 2025, rents for offices and retail spaces will remain under pressure, particularly in secondary street shops and non-core areas, where rental declines could reach 0 to 5%. Meanwhile, investor confidence in the capital market is insufficient, resulting in a decreased willingness to invest in land, which poses a challenge to the supply of land in the market.

Secondly, the uncertainty of the economic environment will have a profound effect on the property market. The economic and interest rate policies of the new U.S. government remain unclear, which will directly influence Hong Kong's residential and property investment market. Although the Hong Kong Monetary Authority has begun to relax mortgage policies, high interest rates still dampen buyer confidence and purchasing power. According to CBRE's forecast, Grade A office rents are expected to decline by 5 to 10% in 2025, while prices for small and medium-sized flats and luxury homes are also projected to drop by about 5%. Such market conditions make developers and investors more cautious in their decision-making.

Moreover, structural changes in the market are reshaping the fundamentals of the Hong Kong property market. The escalation of the U.S.-China trade war, global economic fluctuations, and the slow recovery of the local economy all impact the property market. The sustained decline in property prices since 2021 is not merely a cyclical adjustment but reflects deeper structural changes in the market. Developers face high financing costs and must find a balance in a high-risk environment, necessitating effective market strategies to address future challenges.

Finally, adjustments in government policy will also influence the market's direction. CBRE suggests that the government simplify land sale terms during economic downturns and consider subdividing larger plots to attract more developers to participate in land bidding. If these measures can be implemented, they may alleviate the tension caused by insufficient market supply to some extent.

Conclusion

In summary, the Hong Kong property market will face multiple challenges in 2025, including oversupply, economic uncertainty, structural changes in the market, and the influence of government policies. Although there are signs of recovery in the market, achieving sustained growth will require concerted efforts from all parties involved. Developers, investors, and the government must closely monitor market dynamics and respond flexibly to future challenges in order to find new opportunities amid the upcoming adjustments.