Colliers has released its "Q3 2026 Market Report," noting that Hong Kong's commercial real estate market achieved further steady growth during the period.
Kathy Lee, Head of Research and Retail Advisory at Colliers Hong Kong, stated that demand for premium offices and education-related assets was particularly prominent during the quarter. Despite financing costs remaining elevated, tenants and investors continued to actively seek opportunities with long-term value. The pace of market recovery varies by sector and district, but with improving office absorption, growth in visitor arrivals, and the return of cross-border capital, the market outlook is gradually becoming clearer.
In the office sector, the Grade A office leasing market improved further during the quarter, with citywide net absorption reaching positive 1.01 million square feet, marking the sixth consecutive quarter of positive absorption. Financial institution-related tenants, particularly quantitative trading firms, were the driving force behind major leasing transactions in Central and Kowloon Station. Central and Admiralty continued to outperform the overall market, with the vacancy rate dropping to 9.1%, returning to single-digit levels for the first time in four years. Rent increases were mainly concentrated in premium Grade A buildings, with top-tier Grade A office rents rising 17.1% year-to-date, while Central and Admiralty rents increased 9.7%, compared to only a 0.8% rise for overall Grade A office rents. In contrast, Kowloon East rents fell 5.8% year-to-date. The firm expects Central and Admiralty rents to record an increase of over 10% in 2026. As for non-core business districts, the market remains tenant-dominated, with Kowloon East rents forecast to decline by more than 5% for the full year.
In the retail sector, benefiting from the continued recovery of tourism, Hong Kong's retail market maintained its improving momentum in the third quarter. August visitor arrivals reached approximately 5.5 million, up 6% year-on-year, setting a post-pandemic monthly record. Personal care brands and mainland education institutions emerged as new sources of leasing demand in the street shop market. Tenants continued to prefer strategically located premises with comprehensive facilities that are ready for immediate operation. Supported by limited supply of quality shops in core districts and an increasingly diversified tenant mix, overall core district street shop rents rose 1.8% year-to-date and 2.3% year-on-year. The firm expects core district street shop rents to rise approximately 3% for the full year of 2026.
In the industrial property sector, Hong Kong's overall industrial property vacancy rate fell to 9.9% in the third quarter, mainly due to landlords offering more attractive leasing terms. Warehouse rents declined 0.8% quarter-on-quarter, marking the eleventh consecutive quarterly decline and a cumulative correction of 19% from the 2023 peak. Leasing demand mainly came from third-party logistics and electronics-related enterprises, driven by growth in semiconductor and advanced electronics exports, while demand from other sectors remained relatively weak. The firm expects industrial rents to continue facing pressure in 2026, with a full-year decline of approximately 8%. However, the Hong Kong government's plan to increase the city's gold storage capacity to over 2,000 tonnes and establish a central gold settlement system is expected to drive medium to long-term demand for high-value logistics and specialized warehousing facilities. Additionally, the Northern Metropolis development is driving brownfield operators to relocate, supporting the consolidation of third-party logistics operations and boosting leasing demand for well-connected logistics hubs in the area.
In the capital markets sector, Hong Kong's investment market recorded HK$10.7 billion in transaction volume in the third quarter, down 23.2% from the previous quarter but still up 18.5% year-on-year. Cumulative investment transaction volume for the first three quarters reached HK$39.8 billion, surging 65% year-on-year and already surpassing the full-year level of 2025. Education-related assets continued to dominate market demand, with student accommodation and education facility transactions accounting for a record 42% of total investment in the third quarter. Meanwhile, overseas capital also returned significantly, with international investors accounting for approximately 30% of quarterly transaction volume, the highest level since the fourth quarter of 2022. The firm believes that the trend of office market recovery and strong demand for education-related assets will continue, but as landlord selling pressure has eased compared to last year, opportunities to acquire quality assets at substantial discounts are gradually diminishing. It is expected that overseas investors will continue to actively seek assets with potential for educational conversion. The firm maintains its forecast of approximately 10% year-on-year growth in full-year investment transaction volume.
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