Commercial Real Estate Market in Hong Kong in 1H 2025:

Key Insights for Retail Brands

Hong Kong’s commercial real estate market in the first half (1H) of 2025 reflects a complex interplay of challenges and opportunities for retail brands and investors. For savvy marketers and business leaders, understanding these dynamics offers actionable insights to position their brands effectively in a competitive but evolving landscape. With a blend of market data and expert analysis, this article will equip you with the latest insights for decision-making.

The State of Hong Kong’s Office Market in 1H 2025

Vacancy Rates and Rental Declines

The Hong Kong office market continues to face significant headwinds. Vacancy rates have surged from 2.5% in 2019 to 14.5% by May 2025, with total vacant space reaching 10.5 million sq ft net. This marks a stark contrast to pre-pandemic levels, driven by slower economic recovery in Hong Kong and China.

Grade A office rents have declined by 43% over the past five years, with Central experiencing an above-average decline of 46%. This sharp drop has created a tenant-favorable environment, offering opportunities for brands to secure prime office spaces at discounted rates.

New Supply and Demand Challenges

Adding to the pressure, 6.7 million sq ft of new office supply is expected by 2029. This oversupply, coupled with muted demand, continues to weigh on the sector. Retail brands seeking regional headquarters or expanding their footprint can leverage this environment to negotiate favorable lease terms.

Hong Kong’s Retail Market: Resilience Amid Shifting Trends

Retail Investment Activity

Retail property investment activity in Hong Kong saw improvement in Q2/2025 compared to the previous quarter, reflecting growing optimism. However, transaction values remain subdued at HK$10 billion, a 20% year-over-year decline.

Noteworthy transactions include the acquisition of Park Aura in Tin Hau for HK$650 million and smaller street shops, reflecting the growing trend of divestment by local investors to mitigate financial pressures.

Demand for Street Shops

Established brands targeting street-level visibility can take advantage of the surge in street shop listings, with valuations below HK$50 million. Sellers include prominent local property investors like Gale Well and Tai Hung Fai, offering prime opportunities for retail marketers to secure high-traffic spaces.

Opportunities for Retail Brands

Flight to Quality

Amid declining rents and higher vacancies, retail brands can adopt a "flight to quality" strategy, securing Grade A retail spaces at previously unattainable price points. For instance, One Exchange Square, acquired by the Hong Kong Exchange for HK$6.3 billion, highlights the premium market’s resilience.

Consumer Behavior Trends

The decline in distressed sales (down to 14% in Q2/2025 from 40% in Q1) signals stabilizing consumer confidence. Retail brands can capitalize on this by investing in prime locations to capture recovering consumer activity.

Insights for International Retailers

Short-Term Challenges

Geopolitical tensions and the US-China trade policy continue to cast a shadow on Hong Kong’s broader economy. Retailers must remain cautious about short-term volatility but position themselves for long-term benefits as the market stabilizes.

Long-Term Potential

With falling interest rates and stabilizing borrowing costs, the retail market offers long-term growth potential. International brands can leverage Hong Kong’s strategic location as a gateway to Asia, ensuring access to affluent consumers and global tourism traffic.

Key Takeaways

1. Vacancy Rates Offer Bargains: With office vacancies at a historic high, brands can secure premium spaces in Central and surrounding districts at competitive rates.
2. Retail Resilience: Improved retail investment activity and declining distressed sales present opportunities for growth-oriented brands.
3. Focus on Location: Target high-traffic street shops and Grade A retail spaces for maximum consumer exposure.
4. Think Long-Term: Despite short-term economic challenges, Hong Kong remains a critical hub for APAC operations.

Retail marketers and brand owners must act decisively, leveraging current market conditions to secure prime locations and position their brands for future growth.

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