Demand normalises but quality leasing momentum holds firm

• In Q1, total net absorption reached 614,300 sq ft, falling by 59.7% q-o-q from the elevated base in Q4 2025, when multiple office projects were completed. Demand from the financial sector remained robust, pushing vacancy in Central to their lowest level since 2023.
• The banking sector remained a key driver of leasing activity, highlighted by Standard Chartered Bank leasing 21,400 sq ft at One Causeway Bay and Rabobank securing 15,600 sq ft at One IGC in West Kowloon.

Central vacancy rates drop to single digit for the first time since 2023

• Continued improvement in occupancy was observed in Central and Wanchai/Causeway Bay, while other submarkets remained broadly stable or edged up slightly.
• The overall office vacancy rate dropped to 13.5% as of end-March, with Central recording a q-o-q decrease of 1.4 ppt to 9.6%. Meanwhile, vacancy rates in Kowloon East expanded by 1.0 ppts q-o-q.

Early signs of rental recovery amid ongoing capital market headwinds

• In Q1, overall office rent rose 1.5% on a q-o-q basis. This uptick was primarily led by Central, where rents advanced by 3.8%. Conversely, fringe submarkets such as Kowloon East continued to face downward rental pressure despite their record-low rental levels.
• Capital values in the overall Grade A office market dropped by 0.4% q-o-q in Q1. The decline in HIBOR—from 3.1% at end-December 2025 to 2.2% by end-March 2026—alongside stabilising rental levels, has helped moderate the pace of capital value decline.

Outlook: Diverging fundamentals across core and fringe locations

• Central’s take-up is outpacing expectations, signaling a more robust and earlier-than-anticipated recovery in the submarket. Momentum is building in prime locations where availability is tight, and lease negotiations are accelerating.
• In fringe submarkets, sizable additions of marketable space are keeping landlords under pressure. Overall rents are projected to decline moderately by 0–5% in 2026.