News release

Hong Kong’s commercial property market will see green shoots in medium term

Price corrections in commercial market will be less severe in the second half of 2020

July 15, 2020

Hong Kong, 15 July 2020 – Hong Kong’s commercial property leasing and investment markets recorded the sharpest correction in the first half of this year since the global financial crisis in 2008/9. But JLL forecasts the price correction in coming six months will be less severe and will see green shoots of hope in the medium term.

Capital values of mass residential remain resilient in the first half of 2020, but the rising unemployment rate will weigh on housing prices by the end of this year.

Office Market

Corporates are delaying decisions on office requirements due to the persisting uncertainty from COVID-19. New lettings in terms of floor area in the overall Grade A office market dropped by 53% in the first half of this year as compared to the same period last year. The overall Grade A office market recorded a negative take-up of 1.42 million sq ft, among the highest withdrawal in the overall market ever recorded. Leasing demand in decentralised submarkets fared better, benefitting from tenants seeking cost-effective offices to manage real estate costs amid uncertainty.

The vacancy rate in the overall Grade A office market hiked to 7.6%, the highest level since September 2009 due to the weakened leasing demand. Ongoing decentralisation and consolidating/downsizing requirements continued to increase vacancy in all traditional core office submarkets.

Surrender space has reached the 18-year record high, amounting to 1.3 million sq ft with 74% of the space located on Hong Kong Island, due to corporates’ cost cutting initiatives. 

Central’s Grade A office rents dropped 17.6% in the first half of 2020 to HKD 100 per sq ft, the sharpest rental fall among the office submarkets. It has dropped 23.3% from the peak in April last year on the back of diminished leasing demand.

Alex Barnes, Head of Markets at JLL in Hong Kong, said: “Leasing demand will remain subdued in the second half of this year due to the weakened economy. We expect Grade A office rents will drop 20-25% this year, after dropping 13.2% over the last six months. Central rents will face the strongest downward pressure due to elevated vacancy, dropping 25-30% in 2020. The rental drop will be less severe in the second half.”

But there are green shoots of growth in the medium term. “Secondary listing of PRC firms on the HKEx is expected to lead a pick up in leasing demand in the city. Although it may not immediately result in these companies taking on large office requirement, the downstream business opportunities for ancillary finance and business services will support overall business growth,” he added.

Rental correction will increase the city’s operational competitiveness and encourage medium term growth for a number of industries who may otherwise be constrained by rental cost. The acceleration of workplaces changes brought about by COVID-19 will also support office relocations and additional demand in the medium term. 

Hong Kong Prime Office Indicator – % Change


Rents (1H2020)

2020 Rental Forecast




Wanchai/Causeway Bay



Hong Kong East






Kowloon East






Retail Market

Total visitor arrivals plunged 88.2% y-o-y in the first five months and even hit the historic low of about 4,000 in April due to the travel restrictions and quarantine measures implemented by the local and overseas governments amid the COVID-19 pandemic.

The pandemic has sent retail market into deep winter, particularly the trades which rely heavily on tourist market. Retail sales of jewellery and watches dropped 67% y-o-y during the first five months of the year, the sharpest fall in retail market. Only the retail sales of supermarket recorded growth during the period.

Since retailers still suffered from the severe disruption of COVID-19, many continued to postpone leasing negotiations. The hiking vacancy pressure has led the rents of high street shops in the four major shopping districts to drop 26.5% in the first half of 2020. Rents of prime shopping mall also dropped 20.8% during the same period.

According to the retailer survey conducted by JLL in Q1, about 42% of the interviewees adopted a ‘wait-and-see’ approach on retail leasing. About 10% of the retailers will stick with their original expansion plan, with international F&B and supermarket operators being the keenest. Lifestyle, fitness and education are also in good mood to secure better locations.

Oliver Tong, Head of Retail at JLL in Hong Kong, said: “Leasing demand will remain weak in the second half of this year due to the ongoing pandemic and economic uncertainties. But mass to mid-market operators from overseas remain keen to expand in Hong Kong, while luxury retailers will continue to consolidate their portfolio or relocate for cost-efficiency. We will see more diversity in the leasing market and retailers are trying to bring in more experiential elements into their stores to attract and engage shoppers. The retail market will rely on local spending as a full return of tourist might not take place this year. We expect high street shops rents to drop 35% to 40% this year, while prime shopping centre rents will drop 25% to 30%,”   

“In the medium to long run, we expect to see a more diverse and healthy market environment, where retailers and landlords will further develop exciting concepts to create better customer experience, bringing the Hong Kong retail scene to the next level,” he added.

Hong Kong Prime Retail Indicator - % Change


Rent (1H2020)

2020 Rental Forecast

High Street Shops



Prime Shopping Centres



Residential Market

Luxury residential capital values were largely flat in the second quarter, yet there were very limited transactions in the market compared to historic levels. Only an average of 561 residential worth over HKD 20 million changed hands per quarter in the first half, compared to an average of 710 per quarter in 2019. Rents have dropped 6.5% in the first half amid notable decline in expatriate demand and downgrading tenant trends.

Capital values of mass residential rebounded 5.3% in the second quarter after it dropped 2.9% in the first quarter. The recovery was largely attributed to the massive monetary easing in most geographies in the second quarter and supported by the pent-up demand since Christmas/New Year period.

Data from JLL shows quantitative easing launched between 2008 and 2012 support mass residential capital values to rise over 200% in about 10 years between 2008 and 2018, as the mortgage rate stayed stubbornly low for long periods with plentiful liquidity. However, home prices are unlikely to grow at rates seen after the 2008/9 financial crisis because of the COVID-19 outbreak, contracting economy, rising unemployment, local political incidents and tightened capital control from the mainland China.

Joseph Tsang, Chairman and Head of Capital Markets at JLL in Hong Kong, said: “Although there is recovery in residential market, the uncertainties in property market remained. The city is now facing the third wave of COVID-19 infection and decreasing capital inflow from the mainland China to Hong Kong’s real estate market. Economic recession and rising unemployment rate will weigh on housing prices. We expect the mass residential prices will drop 5% to 10% this year, while the capital values of luxury residential will drop 10% to 15%.”

Hong Kong Residential Indicator – % Change


Capital Values(1H2020)

2020 Capital Values Forecast

Mass Residential



Luxury Residential



Investment Market

Total investment volumes of commercial properties worth, HKD 20 million or above, dropped by 63% y-o-y to HKD 20.6 billion in the first half, the lowest level over the last 11 years. About 58% of the investment volumes was retail properties, which was lifted by a few large asset disposal transactions by portfolio landlords. Total investment volumes of office properties dropped 91% to HKD 3.11 billion as the bid-offer gap has widened under the uncertain market outlook.

Grade A office investment appeal waned as rental decline sharpened; capital values fell 14.1% in the first half.

Off thin transaction volumes, capital values of high street shops fell 24% in the first half, the sharpest correction among the commercial properties. High street shops rental values and capital values have already undergone substantial correction and are bottoming. Rental values are about 33% above the trough at the second quarter of 2003 while capital values are still 168% higher than the second quarter of 2003 trough.

Joseph Tsang said: “The sentiment in investment market will remain weak in the second half due to the pandemic, increasing East-West tension and weak economy. We expect the capital values of high street shops will drop 35-40% this year, while capital values of Grade A offices will fall 20-25%. The impact on prime warehouses would be moderate, while its capital values will only drop 5-10% in 2020.”

Hong Kong Investment Indicator – % Change

Submarket / Sector

Capital Values (1H2020)

2020 Capital Values Forecast

Overall Grade A office


▼20 - 25%

High Street Shops


▼35 - 40%



▼5 -10%

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit