Negative net take-up despite improving market sentiments

• Net absorption in Q1 2025 was negative at 143,400 sq ft, mainly due to some sizable spaces returning to the market after previous consolidations and relocations. However, market sentiments improved with some notable expansions in core locations and assets.
• Financial institution KGI leased two floors at One Pacific Place in Admiralty for business expansion needs. Ralph Lauren Sourcing Company Limited leased two floors at 83 King Lam Street in Cheung Sha Wan, upgrading from an industrial building in the same district.

Vacancies improve in some submarkets

• THE CENDAS (320,000 sq ft) in Kowloon Bay was completed in Q1 2025.
• The overall vacancy rate rose to 13.7% as at end-Q1 2025, mainly as the result of stock adjustments. Central’s vacancy dropped to 11.5% from 11.6%, Wanchai / Causeway Bay and Tsimshatsui’s vacancies also improved to 9.5% and 8.3%, respectively.

Rental declines across all submarkets

• Rents in the overall market declined by 1.3% q-o-q in Q1 2025, with all submarkets registering declines. Notably, rents in Central continued to drop by 0.7% q-o-q, while rents in Hong Kong East registered the largest decline of 3.4%.
• In a high-interest rate environment and a soft rental outlook, capital values in the overall market dropped by 2.2% q-o-q in Q1 2025, while investment yields expanded marginally.

Outlook: Signs of recovering demand amid supply headwind

• We expect more early signs of improving demand throughout 2025. Tenants will continue to focus on cost-effective options, with some seeking expansions in core submarkets and assets.
• Rents are likely to continue to experience downward pressure due to moderated economic growth and high vacancy pressure. In 2025, overall market rents are expected to remain in their downward cycle, dropping 5 to 10%.