Rents decline across the board amid improving take-up

• Leasing sentiment improved towards end of 2024. Net absorption in Q4 2024 recorded 377,100 sq ft, mainly due to some sizable leasing transactions. The market conditions remained tenant-friendly, with occupiers having opportunities to upgrade.
• Demand was predominantly driven by consolidations and renewals with some expansion cases from the financial sector. Millennium Management, a global asset manager, leased one floor of 23,900 sq ft (LFA) at Two IFC in Central for in-house expansion.

Vacancy rate declines as no projects complete in Q4 2024

• No projects were delivered to the market in Q4 2024. The completions of two government buildings, one each in Chai Wan and Cheung Sha Wan, totalling 872,000 sq ft, were pushed to 2025.
• Vacancy retreated to 13.2% in Q4, with all submarkets seeing some improvement. Of the net take-up in Q4, 85% originated in the five key submarkets, reflecting that tenants are attracted to high quality offices at much more affordable rentals after substantial rental correction of around 40% since last peak.

Rents decline across all submarkets

• Overall rents fell 1.9% q-o-q in Q4 2024, with all submarkets registering decreases. Notably, rents in Central dropped by 1.9%, pressured by intensified competition within the district. Meanwhile, rents in Hong Kong East and Kowloon East both dropped by 2.8%.
• In a high-interest rate environment and a soft rent outlook, capital values in the overall market dropped by 2.8% q-o-q in Q4 2024, while investment yields expanded marginally.

Outlook: Improving leasing momentum in 2025 amid heavy supply

• A gradual recovery in demand is expected in 2025 as the global economy improves and companies adapt to new work models. Although landlords still need to offer incentives to attract and retain tenants, the improving demand will help to counterbalance these pressures.
• Despite the anticipated recovery in leasing activity, rents will continue to face downward pressure. Overall market rents are expected to remain in a downward cycle in 2025 amid conservative market sentiment and significant supply, dropping by 5-10%.