In early May 2025, investor sentiment showed tentative improvement amid easing U.S.-China trade tensions and interest rate cuts. While the fundamentals of office and retail remained weak, lower funding costs and active end-user acquisitions for self-use properties provided short-term support to the market, according to Savills in its Market in Minutes – Hong Kong Investment report of May 2025.
- Tariff Relief Boosts Confidence: The 90-day tariff reduction agreement between China and the U.S. has lowered duties on select goods to 30% and 10%, alleviating global investor concerns and improving short-term market sentiment.
- Funding Costs Decline: HKD strength and capital inflows pushed the 1-month HIBOR down to 0.60% (as of May 28) - the lowest level since 2022, easing repayment pressure for highly leveraged investors.
- Subdued Investment Sentiment Persists: Despite stock market recovery, Q1 2025 non-residential major transactions totaled HK$4 billion, down 42% YoY and representing just 10% of 2024's total transaction volume.
- End-User Driven Activity: Owner-occupiers like HKEX, Airport Authority, and religious institutions led premium asset transactions. Notably, HKEX acquired 9 floors and retail space in Exchange Square One at HK$32,000/psf - a 70% premium over recent grade-A office deals.
- Ongoing Rental and Price Corrections: Grade-A office and prime street shop rents fell 1.6% and 3.6% respectively in Q1 2025, with prices projected to drop another 5-10% annually amid persistent oversupply.
- Savills Forecast: Grade-A office prices expected to decline 5-10% for the remainder of 2025, with prime street shops seeing 5% decreases.
Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “A 90-day tariff reduction eased US/China trade tensions, boosting investor sentiment. The strengthening Hong Kong dollar and capital influx lowered the 1-month HIBOR to below 1%, providing relief to property investors. Future market dynamics will depend on interest rates and bank lending policies.”
Mr. Peter Yuen, Managing Director, Investment & Sales of Savills said, “Looking ahead, interest rate trends and bank lending policies will be the key market drivers. Some financial institutions anticipate a gradual rebound in HIBOR, with forecasts suggesting the 1-month HIBOR could climb back above 2% by mid-2025.
While the current low-interest environment provides breathing room for leveraged investors and reduces pressure on distressed asset sales, buyers relying solely on prevailing rates as their investment basis may face heightened risks. As interest rates gradually normalize, market sentiment will ultimately realign with fundamental economic factors.”