- Residential market sentiment turned more positive after the Chinese New Year as purchasing power continued to be released. Strong primary market home sales also drove secondary market activity, with Q1 residential transaction numbers surging 53% y-o-y to 18,650 units. Home prices across different segments recorded growth, demonstrating that buyer appetite has yet to be impacted by geopolitical tensions in the Middle East.
- Grade A office market quarterly net absorption remained positive for the tenth consecutive quarter at 217,100 sq ft in Q1, mainly driven by leasing activity from the banking & finance sector. Greater Central rents have now bottomed out, strengthening by 5.5% q-o-q and supporting the city’s overall office rents to increase by 2.4% q-o-q.
- Overall retail market sales have continued to recover on the back of rising tourist arrivals. The average high street vacancy rate fell further to 4.2% in Q1, with tier-1 high streets in Causeway Bay and Central being fully occupied.
Despite ongoing geopolitical tensions in the Middle East, Hong Kong’s residential market continued to perform resiliently, with both primary and secondary market transactions recording sustained growth. Total residential transaction numbers in Q1 rose by 9% q-o-q and 53% y-o-y.
In the Grade A office market, net absorption reached 217,000 sq ft in Q1, driven by leasing demand from the banking & finance sector. However, rental performance continued to diverge between core and non-core submarkets, and the recovery was chiefly led by core areas.
As for the retail sector, total retail sales continued to recover gently, supporting a further drop in the overall high street vacancy rate in Q1. Hong Kong Island outperformed the overall market, with rents in Central and Causeway Bay rising by 1.1% and 0.8% q-o-q, respectively.
Office Market Key Takeaways
- On the back of sustained demand from the banking & finance and insurance sectors, office market net absorption reached 217,100 sf in Q1 to remain positive for the 10th consecutive quarter.
- The overall Grade A office market rental level rent gained 2.4% q-o-q in Q1, marking two consecutive quarters of overall rental growth for the first time since Q1 2019.
- Geopolitical uncertainties may prompt investors to reallocate capital to Hong Kong, potentially supporting demand from banking & finance and wealth management-related sector occupiers.
- Cushman & Wakefield forecasts the overall office rental level to grow in a range 1% to 3% in 2026, chiefly driven by Greater Central rent growth at +6% to +8%. Rental level divergence between prime area office properties and other decentralized areas will become more pronounced.
- As most new pipeline supply is expected to be completed in the 2H 2026 period, the overall availability rate is expected to remain broadly stable in the next quarter if existing leasing momentum is sustained.
Retail Market Key Takeaways
- Sustained growth in inbound visitors and stabilized local consumption sentiment continued to support retail market recovery in core districts high streets in Q1.
- The overall retail market vacancy rate has continued to fall, with tracked first-tier Causeway Bay and Central district high streets recording zero vacancies. The market continued to see leasing demand from new market players on first and second-tier high streets.
- High availability in F&B areas across districts combined with changing consumption habits continued to weigh on F&B rental performance. Smaller F&B spaces, at less than 5,000 sf, are anticipated to be most attractive to operators.
- Cushman & Wakefield maintains a forecast for the 1H 2026 period of an increase in overall high street retail rents in the range of 2% to 3%, together with a fall in F&B sector rents in the range of 1% to 3%.
- Ahead, a stronger RMB, growing visitor arrivals, and the wealth effect stemming from an improving residential market are expected to strengthen consumption activity.
Residential Market Key Takeaways
- Residential market momentum sustained amid lower interest rates and the return of investor interest through Q1.
- Home sales continued to pick up, with Q1 2026 residential S&Ps recording a 53% y-o-y increase.
- Cushman & Wakefield data indicates that overall mass market home prices increased by around 5% in the Q1 period.
- The full-year residential transaction number is expected to reach 65,000 to 70,000 units.
- Cushman & Wakefield expects full-year 2026 home prices to pick up in a range of 7% to 10% y-o-y, assuming Middle East tensions ease in the coming months.
