Central office rents may rise 10%-15% in 2026: JLL

Residential transactions reached their highest monthly level since Hong Kong removed its property cooling measures.

Central Grade A office rents are expected to rise by 10% to 15% in 2026, supported by IPO activity, mainland Chinese wealth inflows and the anticipated carried-interest tax exemption, according to JLL.

The outlook varies across Hong Kong’s office submarkets. Rents in other core districts are forecast to increase by up to 5%, whilst those in Hong Kong East may fall by as much as 5%. Kowloon East rents are expected to decline by 5% to 10%.

Hong Kong’s office leasing market recorded 279,000 sq ft of positive net absorption in June. Overall office rents edged up 0.1% MoM, led by a 0.6% increase in Central and a 0.5% rise in Tsim Sha Tsui.

The overall Grade A office vacancy rate fell to 13.1% at the end of June. Central’s vacancy rate declined to 8.8%, whilst Kowloon East’s fell to 20%.

In the residential market, transaction volume increased by 512 units from the previous month to 7,650 in June. This was the highest monthly total since Hong Kong removed all property cooling measures in the first quarter of 2024.

The increase was driven by the secondary market, where transactions rose by 929 units to 5,657. Primary-market sales declined by 413 units to 1,993.

Mass-market residential capital values increased by 0.9% MoM.

However, JLL expects a potential shift towards higher interest rates to moderate the residential market’s near-term growth.

The US Federal Reserve raised its median end-2026 interest-rate forecast from 3.4% to 3.8% in June. Persistent inflation and higher energy prices arising from tensions in the Middle East led investors to assign an approximately 70% probability to an interest-rate increase as early as September, the report said.

Hong Kong’s retail market also continued to recover, with sales rising 7.9% YoY to $33.8b in May. Jewellery, watches and valuable gifts remained resilient, whilst optical-shop sales increased 10.3%, marking the segment’s first growth since 2024.

Visitor arrivals rose 9.5% YoY to 4.46 million. Arrivals from mainland China increased 11.6% to 3.49 million, although visitors from several short-haul markets continued to decline. South Korean arrivals fell 20.1%.

Lower rental levels encouraged several local retailers to return to prime shopping streets in June. These included eGG Optical Boutique, Sasa and Spaghetti House.

Despite improving consumption and tourism figures, JLL said investment sentiment towards retail property remained subdued.