Central and Admiralty power office rebound

Vacancies fell as prime district leasing drives wider commercial property market recovery.

Hong Kong's Central and Admiralty office market extended its recovery in the second quarter (Q2) as vacancy fell to 10.2%, helping drive 864,000 square feet (sq ft) of Grade A office net absorption across the city, according to Colliers.

The property consultancy firm said Central and Admiralty recorded 182,000 sq ft of net absorption in Q2, marking a fourth straight quarter of positive leasing activity. Vacancy in the district fell by 4.3 percentage points from a year earlier.

Across Hong Kong, Grade A office vacancy declined by one percentage point quarter on quarter (QoQ) to 16.1%.

"Core district demand will continue to anchor the broader office market through the remainder of 2026," said Fiona Ngan, head of occupier services at Colliers Hong Kong.

She said around 1.2 million sq ft of new office supply is due for completion in the second half of the year, but operators have largely priced the new space into current rental levels.

Colliers raised its forecast for Central and Admiralty office rents, expecting them to increase by 5% to 8% this year. It expects rents in Kowloon East to fall by more than 5%.

The retail market also improved in the second quarter. Retail sales rose 10.6% year on year (YoY), whilst visitor arrivals increased 14.1% to 23 million in the first five months of 2026.

Colliers said tourist-focused retailers, particularly souvenir and gift shops, remained active, with most taking units of around 800 to 1,000 sq ft. High-street rents rose 0.4% from the previous quarter and 2% from a year earlier.

"Retail sales growth is expected to remain positive, though more moderate in the second half of 2026," said Kathy Lee, head of research and retail consultancy at Colliers Hong Kong.

She said continued growth in visitor arrivals and limited availability of prime retail space should support rents, with Colliers forecasting high-street rents to rise by around 3% this year.

Warehouse rents fell 3.2% QoQ as landlords continued to offer leasing incentives, although Colliers said resilient trade linked to global AI demand continued to support the industrial market.

Commercial property investment reached about $14b in Q2, down 5.5% from the previous quarter but 60% higher than a year earlier.

The office sector accounted for the largest share of investment activity, whilst a large residential en-bloc transaction also lifted volumes.

Thomas Chak, head of capital markets and investment services at Colliers Hong Kong, said education and living-sector assets are expected to remain key investment themes in the second half of the year.

He added that Colliers maintained its forecast for full-year investment transactions of about $42b.