News release

High rates and stringent mortgage loans hinder property market recovery

Office and residential markets remain under downward pressure, retail rents maintain growth

July 10, 2024

Yvonne Liu

Public Relations Director, Hong Kong and Macao
+852 2846 5264

HONG KONG, July 10, 2024 – Hong Kong's commercial investment and housing markets are currently facing the dual impact of stringent mortgage loan approvals and high interest rates. The prices of commercial and residential properties will drop further in the coming six months, according to JLL's mid-year market review and forecast.

Cathie Chung, Senior Director of Research at JLL, said: "The stringent mortgage loan conditions have dampened the purchasing enthusiasm of investors, resulting in a decline in transaction volume. Such will further suppress the capital values of properties. The commercial investment and home sales markets have been hit the hardest, ultimately affecting the overall economy. Demand-side support from the government is needed before the public loses confidence in the property market."

Key points:

  • Increasing demand from upgrading office space has been witnessed in the market. Leasing volume related to office spaces of 20,000 sq ft or above, stayed at a high level at around 30% of total leasing volume over the past six months.

  • For the first time, brands from mainland China accounted for 33% of all new international brands entering Hong Kong for the first time, surpassing Japanese retailers as the most active newcomers in the city.

  • The government should set up a task force and introduce relief measures to avoid the city repeating the down cycle witnessed between 1997 and 2003.

  • Retail properties with existing tenancy offering 4-6% rental yield would be appealing to investors.
Office Market

Limited expansionary demand and more lease renewals led to a soft office leasing market in the first half of 2024, with gross leasing volume dropping 28.1% from the second half of 2023. However, the market recorded a positive net absorption of 502,300 sq ft during the period due to the realisation of pre-committed space of new completions. The overall vacancy rate reached a record high of 13.6% at the end of June, partially due to new office supply. Rents of overall Grade A offices declined by 4.3% in the first half of 2024, with Central experiencing the sharpest drop of 7.1%, mainly due to the fierce competition from new supply within the district.

In the first half of 2024, FIREBS industry accounted for the largest share of leasing volume at 52.6%. Breaking down by industry, insurance and wealth management were the most active tenants in the market.

Notably, large occupiers are taking advantage of the more affordable rentals to upgrade their office space. Sizable transactions of 20,000 sq ft or more in landlord-quoted area remain high in the first half of this year. It accounted for 29.0% of the total leasing volume over the past six months.

Paul Yien, Executive Director of Office Leasing Advisory at JLL, said: "More tenants are taking the opportunity to consolidate their offices into a single location and are looking for office buildings with large floor plate for long-term development. However, currently in Hong Kong, only 13.8% of Grade A office buildings offer floor plate sizes of over 20,000 sq ft. The lack of large floor plate is particularly notable on Hong Kong Island, where only 7.5% of the offices are equipped with this kind of floor plate. Tenants who look for large floor plates will enjoy ample options when new projects such as International Gateway Centre (IGC) and Artist Square Towers, both situated in West Kowloon, as well as Lee Garden 8 and One Causeway Bay, both located in Causeway Bay, which are scheduled for completion between 2025 and 2026,"

"Office rents will drop further for 0-5% in the coming six months. Despite the large amount of new supply posing pressure on vacancy rates, high-quality new offices equipped with premium specifications, strong ESG credentials, and offer offices amenities will be gradually absorbed as the market is dominated by the upgrading demand," he added.

Hong Kong Grade A Office Indicator – % Change

Submarket Rent
(1H 2024)
2H 2024
Rental Forecast
Central ▼7.1% ▼0-5%
Wanchai / Causeway Bay ▼1.7% ▼0-5%
Hong Kong East ▼4.1% ▼0-5%
Tsimshatsui ▼1.5% ▼0-5%
Kowloon East ▼3.2% ▼0-5%
Overall ▼4.3% ▼0-5%

Source: JLL Research

Retail Market

The retail market's recovery has been further challenged by a growing leakage in domestic consumption due to strong northbound and outbound travels. In the first half of 2024, although total inbound arrivals increased by 64.2% y-o-y, the total departures of Hong Kong residents surpassed inbound tourism visitations by 48.3%. Also, the average shopping and dining-out expenditure per tourist decreased by 17.4% in the first quarter of 2024, compared to the previous year.

Rents of High Street shops grew 3.0% in 1H24, while rents of Prime shopping malls climbed 0.9%. Leasing activities in the retail market were polarised, with both high-end brands and mass-market tenants becoming more active in top-tier shopping streets, leading to a slight improvement in the vacancy rate of High Street shops to 11.5%, edging down from 11.6% as at end-2023. However, some lower-tiers streets struggled to attract tenants, despite offering highly negotiable rents.

The number of international brands newly enter the Hong Kong market saw a 91% y-o-y growth over the last six months, showing Hong Kong remains attractive to international brands. About 33% of new non-local brands came from mainland China, surpassing Japanese retailers for the first time and becoming the most active newcomers in the city. 

Oliver Tong, Head of Retail at JLL, said: "We expect the rents of High Street shops and Prime shopping centres to grow by up to 5% in the second half of this year. However, the market is under pressure as the decline in domestic consumption is anticipated to intensify during the summer and Christmas holidays and it will take time to see a full recovery in tourist spending,"

Despite some relief from the relaxation of the Individual Visit Scheme (IVS) and an increase in duty-free allowance for mainland Chinese tourists, Hong Kong's retail market still faces significant challenges.

He said: "We are facing increasing competition from the nearby cities. The issuance of travel permits to non-Chinese permanent residents of Hong Kong by mainland authorities could redirect more retail spending northbound from the local market. Furthermore, the transformation of Hainan into a tax-free zone in 2025 further exacerbates regional competition, potentially affecting Hong Kong's luxury retail sector."

Hong Kong Prime Retail Indicator - % Change

Sector Rent
(1H 2024)
2H 2024
Rental Forecast
High Street shops ▲3.0% ▲0-5%
Prime shopping centres ▲0.9% ▲0-5%

Source: JLL Research

Residential Market

As expected by JLL, the removal of cooling measures could not reverse the decline in home prices. The RVD private domestic price index fell by 1.7% year to May, marking a 23.1% decline from the market peak in September 2021.

The accumulated purchasing power of investors and non-local buyers have been quickly absorbed. The increase in demand from the influx of mainland Chinese buyers following the removal of cooling measures has been largely offset by the diminished enthusiasm of local buyers. Local end-users, who rely heavily on mortgage financing, are finding it increasingly difficult in securing mortgage loans. Also, the price war in the primary market continues, with prices of some new projects reaching decade lows.

Looking ahead, the residential market presents a mix of challenges and opportunities. On the challenge side, there is a significant inventory in the primary market, coupled with high financing costs compelling developers to lower prices to accelerate sales. Additionally, elevated mortgage rates are impacting homebuyers' affordability, and subdued business and investment activity is also evident in the city. On the other hand, the market is buoyed by strong residential demand, as demonstrated by the active leasing market. The robust rental growth is attractive to investors. Meanwhile, there are increasing number of mainland Chinese buyers and the expectations of RMB depreciation could hasten asset allocation to Hong Kong.

Joseph Tsang, Chairman of JLL in Hong Kong, said: “Prices of mass residential will drop about 10% in the second half of 2024, while prices of luxury residential will drop 5-10% due to increased new supply. Even if the US rate is cut by 25-50 basis points, it is unlikely to have a material impact on local mortgage rates,”

Negative equity cases surged 400% in 12 months to 32,000 in March 2024. If the home prices fall by 10% in 2024, we estimate the cases will surpass 100,000 by year end.

“Home prices have dropped for three consecutive years since September 2021. Such a sustained decline in home prices has not been witnessed since the price fall during the Asian financial crisis in 1997. It is imperative that we recognise and address the risks currently facing the housing market”, he added.

He suggested the government to introduce the following measures on the housing market:

  • Set up a Task Force to assess the level of property market risk and formulate policy interventions for risk mitigation.

  • Provide low-interest rate loans to first-time home buyers.

  • Offering additional homebuying incentives to eligible talents and broadening the permissible. investment assets in new CIES to include residential properties.

Hong Kong Residential Indicator – % Change

Sector 1H 2024 2H 2024 Forecast
Mass Residential Capital Values ▼0.7% ▼~10%
Luxury Residential Capital Values ▼0.2% ▼5-10%
Luxury Residential Rental Values ▲1.6% ▲0-5%

Source: JLL Research

Capital Markets

The total investment volume of commercial properties valued at HKD 50 million or above dropped by 25.6% from the previous six months to HKD 13.2 billion in the first half of the year, the lowest level since 2020. This further drop in transactions was mainly due to the persistently high interest rate and increasing tightening of mortgage loan approvals.

Retail continued to be the most popular investment asset in the market owing to the support from a gradual return of tourists. Sales of retail properties accounted for 45.1% of the total commercial property investment, supporting the 0.5% capital value growth of High Street Shops over the last six months, the only sector where the capital values have remained resilient.

The local market still saw a limited inflow of global capital, with the portion contracting from 5.9% in the second half of 2023 to 0.6% in the first half of 2024.

Eunice Tang, Executive Director of Capital Markets at JLL, said: "The commercial properties market is currently facing the dual challenges of high interest rates and stringent mortgage loan approvals. This has dampened investment sentiment and consequently led to a decrease in transaction volume. It has contributed to an unhealthy landscape in the market and is further exacerbating the downturn. Mainly end-users who have easier access to bank loans are able to participate in the market. However, coupling with the rising number of distressed sales in the market, the high sensitivity of end users to price could further drive down the capital values of commercial properties,"

Under this challenging investment environment, Tang suggested the landlords explore options to renovate their properties to enhance rental income and potentially yield higher exit prices when the market improves following interest rate cuts. They could potentially convert their buildings to cater to the emerging demands in the market, such as student accommodation or electric vehicle charging stations.

“Investors will continue to look for properties with higher return and lower risk profiles in the downturn. Thus, retail properties with existing tenancy offering 4-6% rental yield would be more appealing to them,” she added.

Hong Kong Investment Indicator – % Change

Sector Capital Values
(1H 2024)
2H 2024
Capital Values Forecast
Grade A Offices ▼5.9% ▼0-5%
High Street shops ▲0.5% ▼0-5%
Prime Warehouses ▼4.0% ▼0-5%

Source: JLL Research

(left to right) Paul Yien, Joseph Tsang, Oliver Tong and Eunice Tang

About JLL

For over 200 years, JLL (NYSE: JLL), a leading global commercial real estate and investment management company, has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. A Fortune 500® company with annual revenue of $20.8 billion and operations in over 80 countries around the world, our more than 108,000 employees bring the power of a global platform combined with local expertise. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAYSM. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit