Morgan Stanley has identified greater growth potential in Hong Kong’s office real estate sector compared to New York City, despite both markets being affected by higher interest rates, according to a report released last week. The US investment bank highlighted several parallels between the two financial hubs, noting that both face limited land availability, high housing costs, and office demand closely linked to the finance industry.

The report, led by Praveen Choudhary, head of Hong Kong and India property research at Morgan Stanley, pointed out that while Hong Kong’s monetary policy has closely tracked the US Federal Reserve’s rate adjustments, the impact of rising interest rates differs between the two cities. The authors suggested that scarcity of prime office space plays a more decisive role than interest rate changes in shaping market dynamics, leading them to favor landlords in Hong Kong over office owners in New York or developers in Hong Kong.

Both cities have recently seen a turnaround in their office markets following elevated vacancy rates that emerged during the Covid-19 pandemic. The recovery has been concentrated primarily in key locations with higher-quality buildings. In Manhattan, the vacancy rate for Class A office space declined by 2.1 percentage points year-on-year to 10.6% in the second quarter of 2026, bringing leasing activity back to pre-pandemic volumes. Rents in this sector increased by 4.3% over the same period.

Similarly, Hong Kong’s prime office market registered a decrease in vacancy to 12.5% in August from 13.5% a year earlier. The Central district has been at the forefront of the recovery, with vacancies falling to 7.8% from 11.2%, accompanied by a 7.3% rise in rents. However, overall capital values in Hong Kong’s office sector remain significantly depressed, at approximately half their peak levels.

The report emphasized that submarket variation is a critical factor within both cities. Manhattan’s strongest office areas are operating at vacancy rates between 5% and 10%, while less desirable neighborhoods face much higher vacancy, sometimes in the mid to high teens. A similar pattern exists in Hong Kong, where Central is experiencing tighter conditions, while areas such as Kowloon East continue to grapple with substantial oversupply.

Because of these disparities, Morgan Stanley concluded that location and building quality are more influential indicators of market performance than aggregate vacancy rates. This view supports the investment bank’s cautious preference for prime office landlords in Hong Kong amid ongoing uncertainty in global real estate markets.