Hong Kong office The real estate market will likely see more distressed sales in the medium term, as banks will have to rely on loans amid weak demand for office space, according to analysts.
From their peak in October 2018, prices for prime office space in the city’s major business zones Sheung Wan/Central, Wan Chai/Causeway Bay and Tsim Sha Tsui fell by more than 46 percent in November, according to the latest data from the Rating and Valuation.
Total rents in the city’s premium office space segment are estimated to have fallen by 8.6 percent this year, according to real estate firm JLL. The real estate consultancy predicts that office rents will fall by as much as 10 percent by 2025.
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“A few years ago, leasing transactions were worth 50,000 square meters, but now leasing transactions are only worth 18,000 square meters, so rents could not finance the loans,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “For the banks, if a borrower has been in default for one or two years, they have to take action anyway. In two to five years, there will certainly be more cases where banks take action.”
While Hong Kong’s six largest lenders… HSBC, Hang Seng Sofa, Bank of China (Hong Kong), Bank of East Asia, Standard Chartered Bank And ICBC Asia – this month reduce borrowing costs to the lowest level in more than two years, uncertainties cloud the prospects for more interest rate-initiated rate cuts US Federal Reserve next year because the new Trump administration’s economic policies are widely seen as inflationary.
“Towards the end of 2024, the office market showed mixed performance,” said Tom Ko, executive director and head of capital markets in Hong Kong at property broker Cushman & Wakefield. “Looking ahead to 2025, the outlook for the office market points to a continuation of challenges.”
The outlook for Hong Kong’s office market in 2025 indicates continued challenges. Photo: Dickson Lee alt=The outlook for Hong Kong’s office market in 2025 points to continued challenges. Photo: Dickson Lee>
Weak sentiment in the city’s office market could mean more distressed commercial real estate sales next year.
“More distressed sales are expected as market conditions persist,” Ko said. “A potential decline in interest rates could lead to increased transaction activity, but the overall market is expected to remain under pressure due to ongoing corrections and financial constraints.”