The looming threat of President Trump’s China tariffs in the first quarter of 2025, coupled with Hong Kong’s strong economic ties to China, contributed to a decline in commercial rents and capital values across nearly all sectors of the city’s property markets, driven by weak demand and abundant supply, according to JLL’s recently released Preliminary Market Summary for Q1 2025.
“Tariffs will have an impact on the macroeconomic landscape, but the magnitude will depend on how policy evolves,” said Cathie Chung, Senior Director of Research at JLL. “Any direct effect on Hong Kong’s real estate market remains uncertain as the situation continues to unfold. In the near term, lingering tariff issues and unclear interest rate trends are expected to keep investors cautious.”
Chung added that the industrial and logistics sectors could face additional headwinds in the coming months.
Office Market Under Pressure as Vacancies Rise
Hong Kong’s office market recorded negative net absorption of 143,400 square feet in the first quarter, mainly due to large spaces re-entering the market following previous consolidations and relocations.
The overall office vacancy rate rose to 13.7% by the end of March. Kowloon East saw a significant increase in vacancies, climbing from 18.6% at the end of 2024 to 21.3%. Conversely, Central’s vacancy rate edged down to 11.5%, while Wanchai/Causeway Bay and Tsimshatsui improved to 9.5% and 8.3%, respectively.
Office rents across the city fell 1.3% quarter-on-quarter, with all submarkets posting declines. Rents in Central dropped 0.7%, while Hong Kong East saw the sharpest fall at 3.4%.
“The office leasing market remained under pressure in the first quarter due to abundant new supply,” said Sam Gourlay, Head of Office Leasing Advisory, Hong Kong Island at JLL. “Despite signs of improving sentiment, Grade A office rents are forecast to decline by 5-10% this year.”
Retail Market Stable but Rents Slip
Retail vacancies crept up slightly in early 2025, with high street shop vacancies reaching 10.6% by the end of March, up from 10.5% in December. Vacancies in prime shopping centres also ticked higher to 9.2%.
Despite this, leasing activity in core areas remained active, particularly among mass-market retailers, fitness centres, and securities firms, according to Jeanette Chan, Senior Director of Retail at JLL.
Retail rents continued to soften as landlords offered discounts to attract tenants amid challenging sales conditions. High street shop rents fell 0.8% quarter-on-quarter, while rents for Overall Prime and Premium Prime shopping centres dipped 0.3% and 0.2%, respectively.
Chan projected that retail rents for High Street shops and Prime shopping centres could decline by up to 5% over the course of 2025.
Industrial Sector Faces Mounting Challenges
Hong Kong’s industrial property market also showed signs of strain in the first quarter. The warehouse vacancy rate rose to 8.9% by March, up from 7.9% at the end of 2024, as leasing activity was largely driven by renewals rather than new demand.
Prime warehouse rents dropped 0.9% quarter-on-quarter.
“The vacancy rate for prime warehouses, which stayed below 2% during the pandemic, has now surged to over 8%,” said Ricky Lau, Head of Industrial at JLL. “With more than 60 million square feet of prime warehouse stock, that equates to over 5 million square feet of vacant space.”
Lau attributed the sharp rise in vacancies to weakening demand from trade-related businesses and the domestic market, amid ongoing US-China trade tensions and a slowing global economy.
Looking ahead, Lau warned that structural changes in the global economy would likely force Hong Kong’s import-export industries to undergo significant transformation, a process that “will take time and inevitably face challenges.”
