Hong Kong’s office property market is bracing for an increase in distressed sales, as weak demand and declining office space values compel banks to act on overdue loans, analysts predict.
Since their peak in October 2018, prices of prime office spaces in key business hubs—Sheung Wan/Central, Wan Chai/Causeway Bay, and Tsim Sha Tsui—have dropped by over 46% as of November, according to the Rating and Valuation Department. Concurrently, premium office rents fell by 8.6% in 2024 and could decline by another 10% in 2025, according to property consultancy JLL.
“Leasing transactions have shrunk significantly, with deals previously averaging 50,000 sq ft now dropping to just 18,000 sq ft. Rental income is insufficient to cover loans,” said Oscar Chan, JLL’s head of capital markets in Hong Kong. He noted that banks may have to take decisive action against long-term loan defaults within two to five years.
Hong Kong’s six largest lenders recently cut borrowing costs to a two-year low, but uncertainties remain over potential US Federal Reserve rate adjustments. “The incoming economic policies could sustain inflation, impacting the market outlook,” Chan added.
Tom Ko, executive director at Cushman & Wakefield, echoed the concerns, stating, “The office market faces ongoing corrections and financial constraints, with more distressed sales likely. While potential interest rate cuts might stimulate activity, the overall market remains under pressure.”
As the sector navigates these challenges, stakeholders will closely monitor market trends to assess opportunities amid the headwinds.
