Office market splits as Central tightens, fringe weakens

Central absorbed demand whilst others lose pricing power under uneven leasing conditions.

Vacancy in Hong Kong Island’s premium Central Grade-A offices is falling from its 2024 peak, whilst rental gaps between core and non-core districts remain wide, according to Knight Frank.

It said the market is splitting in 2026 as demand concentrates in premium Central and select West Kowloon assets, whilst outer districts face weaker rental performance due to higher supply.

More than 50% of new leases in 2025 were completed in Central. Vacancy in premium Central has begun to decline, whilst Traditional Central and non-core districts remain higher. Premium Central rental versus Traditional Central fell from $50 per sq ft in 2018 to $29 in 2025.

Sheung Wan, Admiralty, and Wan Chai are absorbing spillover demand as core availability tightens, the report said.

Knight Frank linked leasing demand to a 118-company IPO surge in 2025 that raised $286b, increasing demand from banking, legal, and professional services firms.

Wealth management and insurance demand also expanded, supported by $3.1t in mainland-related assets under management and a 50% increase in new long-term insurance premiums in the first half of 2025.

The report cited stronger liquidity, with $1.07t in net capital inflows as of September 2025, the report noted.

Three-month HIBOR fell to 2.7% in February 2026 from 4.7% in February 2024. Equity turnover rose 94% year on year in 2025.

Financial firms expanded leasing, including hedge funds and quantitative trading firms moving into Central Grade-A offices.

Rental performance continues to diverge across submarkets. Premium Central and selected harbour-view buildings in Sheung Wan show gains, whilst North Point, Wong Chuk Hang, Quarry Bay, and Causeway Bay face pressure from upcoming supply.

Rental levels remain below 2018 levels. Premium Central versus Admiralty fell from $88 per sq ft in 2018 to $51 in 2025.

Knight Frank attributed demand to a flight-to-quality trend, with tenants prioritising large floor plates, ESG specifications, efficient layouts, and amenity space, whilst landlords increased fit-out provision and non-monetary incentives.

Owner-occupier demand has increased. Recent transactions include Alibaba’s purchase of part of One Causeway Bay for $7.2b, HKEX’s acquisition of part of One Exchange Square for $6.3b, and JD’s acquisition of part of CCB Tower for $3.5b.

Knight Frank expects further divergence in 2026, with premium Central vacancy falling to low single digits and a backfill pipeline emerging between 2026 and 2028 as major tenants relocate, including UBS, Point72, Jane Street, Qube Research & Technologies, and Alibaba.