Key facts
- Morgan Stanley forecasts Hong Kong office capital values to rise 8%-10% in 12 months.
- Morgan Stanley forecasts Hong Kong retail property prices to rise 10%-15% in 12 months.
- Hong Kong mass-market home prices have recovered approximately 5% from their 2023 trough.
- Hong Kong Grade A office vacancy rate is estimated at 16% entering 2025.
- Retail sales growth in Hong Kong was 3.2% year-on-year in February 2025.
- Prime Grade A office assets in Hong Kong trade at indicative benefits of 3.5% to 4.2% over government bonds.
Morgan Stanley forecasts Hong Kong's property market, particularly its office and retail segments, to see significant upside over the next 12 months, extending a recovery that began with residential properties. The investment bank projects office capital values to rise by up to 10% and retail property prices to increase by as much as 15%.
This outlook contrasts with New York's property market, which has also been impacted by higher interest rates. Hong Kong's monetary policy closely follows that of the US Federal Reserve, and both cities face limited land supply. However, Morgan Stanley sees greater potential for growth in the Asian financial hub.
The recovery in Hong Kong's commercial real estate is being driven by several factors. Leasing demand from Mainland Chinese financial and professional services firms has helped absorb the Grade A office oversupply that previously weighed on valuations. Net absorption in key submarkets like Central and Wan Chai turned positive in late 2024, a technical signal often preceding capital value stabilization.
Retail footfall has also strengthened, boosted by a recovery in inbound tourism from Mainland China, which has reached about 70% of pre-pandemic levels, and a modest increase in local consumer confidence linked to falling mortgage rates. Hong Kong's high-street retail rents in prime locations had fallen more than 40% from their 2019 peaks, meaning the projected 15% capital value recovery would still leave valuations below historical highs. Investors are acquiring assets at a significant discount to replacement cost.
While the Grade A office vacancy rate in Hong Kong was an estimated 16% entering 2025, down from a pre-pandemic norm of 8%-9%, the rate of new supply entering the market is expected to slow from 2026. This should gradually tighten availability. Morgan Stanley analysts noted that effective rents have begun to firm in select buildings, with landlords reducing concessions for the first time since 2021. Prime Grade A office assets are trading at historically attractive benefits of 3.5% to 4.2% over Hong Kong government bonds, which Morgan Stanley argues compensates for near-term occupancy risk.