Report: HK commercial realty set to turn corner

Alibaba's acquisition of multiple floors in a Hong Kong office tower — the city's largest office deal since 2021 — is expected to inject impetus into the local commercial real estate market.

According to a recent report, the sector saw sustained recovery in the third quarter, with net absorption for Grade A office space reaching a seven-year high.

CBRE Hong Kong said on Monday that despite persistently high vacancy rates and rental declines, the special administrative region's commercial real estate activities across office, retail, industrial and investment still gained momentum between July and September, buoyed by easing interest rates and a more stable macroeconomic outlook.

For the Grade A office sector, net absorption citywide hit 691,800 square feet (64,270 square meters) during the period, marking the highest quarterly total since the third quarter of 2018, a report by the real estate agency showed.

Notably, for the first time since the second quarter of 2015, all major districts posted positive net absorption, which indicates that more space was leased than vacated in the areas.

Chinese technology giant Alibaba Group Holding Ltd and its affiliate Ant Group Co said on Saturday that they have agreed to acquire several floors of One Causeway Bay, an office building in Causeway Bay, one of Hong Kong's priciest districts, for HK$7.2 billion ($925 million). The companies said the space will serve as their Hong Kong headquarters, as the companies step up efforts to expand their global presence.

Reeves Yan, head of capital markets at CBRE Hong Kong, said the landmark deal could significantly boost market sentiment, given the scale and reputation of Alibaba.

Interest from Chinese mainland investors in Hong Kong real estate — including office buildings, retail spaces, and luxury homes — has been rising, Yan added. "I believe this trend will continue not just in the coming one or two years, but well beyond."

Echoing this sentiment, Marcos Chan, head of research at CBRE Hong Kong, said Hong Kong's role as a "super-connector" makes it a launchpad for thousands of Chinese mainland enterprises looking to expand globally.

As these companies receive assistance from Hong Kong, Chan said he believes many will need a base in the SAR. "That demand could have a positive impact on the office leasing market," he added.

Mark Leung, a property analyst at UBS Investment Bank, said Hong Kong's office leasing sentiment has slightly improved, buoyed by an increase in international companies setting up operations in the city and the recovery of capital markets.

Moreover, he said that the rising number of non-local students could further support a revival in the office market, as a lack of student housing may create opportunities to convert hotels and office buildings into accommodation.

"We're not far from the end of the tunnel," said Leung, who predicted the office market to bottom out and stabilize by late 2026, adding that with new supply set to decline, rents are expected to recover between 2027 and 2028.