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Hong Kong’s office segment to see faster turnaround than retail sector: Morgan Stanley

‘We think the Hong Kong office market is not structurally impaired,’ Morgan Stanley’s Praveen Choudhary says

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Morgan Stanley expects improved office space demand in Central and at super grade A commercial buildings in Hong Kong. Photo: Shutterstock
Cheryl Arcibal
Hong Kong’s office space segment has a higher probability of making a fast turnaround than the local market’s other sluggish sector, retail property, according to Morgan Stanley.
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“In our view, retail’s performance may be worse than office in terms of rental improvement, as the office market usually benefits more quickly from a sentiment boost,” said Praveen Choudhary, head of Hong Kong and India real estate research at the New York-based investment bank.

That assessment runs contrary to those of other market experts who predicted the retail sector to shake off a slump – triggered by social unrest during a wave of Hong Kong protests in 2019 and the coronavirus pandemic from 2020 – ahead of the lethargic office segment, which is saddled with excess commercial space.

Since 2019, office rents in the city have dropped by 40 per cent, according to CBRE. Last year, the segment’s rents declined by 6.3 per cent.

From 2025 to 2026, about 6 million square feet of new office space will come on line including 2.6 million sq ft at International Gateway Centre in West Kowloon and 1.06 million sq ft at Lee Garden Eight in Causeway Bay, according to data complied by Midland IC&I.

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In the retail segment between 2019 and 2023, the city’s four core shopping locations – Causeway Bay, Tsim Sha Tsui, Central and Mong Kok – saw rents fall between 29 per cent and 47 per cent, according to Cushman & Wakefield. Last year, rents in this segment improved from a range of 3.2 per cent to 6.7 per cent.

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