Hong Kong real estate poised to grow in 2025 amidst sustained retail, office demand

Hong Kong’s commercial real estate market saw strong investor activity in the second half of 2024.

Real estate investment volumes in Hong Kong are projected to grow further in 2025, driven by sustained demand in the office and retail sectors, according to Colliers.

After a 19% year-on-year (YoY) increase in H2 2024, the city’s real estate market is seeing renewed optimism, fuelled by the return of foreign investors, distressed asset sales, and stable rental growth in key commercial sectors.

Hong Kong’s commercial real estate market saw strong investor activity in the second half of 2024, with office and retail properties attracting the most interest.

Retail investments gained momentum, as major portfolios were divested, whilst the office sector continued to be a key driver, particularly in prime business districts.

Foreign investors, who had largely retreated due to economic uncertainty, began re-entering Hong Kong’s market in late 2024, boosting overall investment volumes. Despite this, domestic capital remained dominant, accounting for 61% of total real estate transactions.

One of the defining trends in H2 2024 was the rise in distressed asset sales, which accounted for 40% of real estate transactions.

With financial conditions remaining tight, investors actively sought mortgage-backed and stressed assets, particularly in the commercial sector.

Colliers said this trend is expected to continue in early 2025, presenting opportunities for buyers looking for undervalued properties.

Despite the financial headwinds, prime office rental rates remained steady at $603 (US$77.6) per sqm/month, whilst retail sector rentals climbed to $2,520 (US$324.3) per sqm/month, indicating growing confidence in the retail recovery.

Hong Kong’s 10-year government bond yield stood at 3.81%, whilst cash rates reached 4.58%, reflecting a higher interest rate environment that could influence investment decisions. Nevertheless, real estate remains an attractive asset class, especially as distressed opportunities arise.

Looking ahead, investors are increasingly eyeing the education sector, particularly university learning centres and student accommodations, which are seeing heightened demand. This sector is emerging as a new hotspot for investment alongside office and retail properties.

(1 USD = HKD7.77)