Hong Kong’s real estate market has shown notable improvement over the past year, with a growing consensus among industry experts forecasting a rise in home prices and signs of recovery in the office sector, despite persistent challenges.

At the beginning of 2026, predictions for a 10 percent increase in secondary residential prices were considered outliers, but Morgan Stanley and other firms now align on this expectation, reflecting heightened confidence in the city’s housing market. The office sector has also seen positive momentum, particularly in prime locations. Grade A office rents in three of the five major districts tracked by CBRE grew quarter-on-quarter in the first quarter of the year. However, rental increases remain uneven, with central business districts outperforming peripheral areas such as Kowloon East and Hong Kong East, where rents are projected to decline further.

Despite these advances, skepticism remains due to the sectors’ history of inconsistent recoveries and ongoing geopolitical tensions that weigh on financial markets. An oversupply issue continues to constrain the pace of market improvement. In the residential segment, excess inventory stood at 17,500 units last month—down from 23,000 units at the start of 2025—but still substantial enough to influence sales activity. New housing completions are expected to approach 17,000 units this year, less than the nearly 24,300 completed in 2024, signaling reduced but persistent supply pressure.

Developers, particularly larger and financially sound firms, have begun cautiously raising prices and reducing discounts on recently launched projects. Still, incentives such as flexible financing and additional promotions remain common to attract buyers, tempering the rate of price growth.

The office market’s uneven recovery reflects a bifurcation between prime locations, like Central, and outlying districts. Central saw roughly a 6 percent quarterly rental increase for top-tier buildings last quarter, but markets in Kowloon East and Hong Kong East continue to experience rental declines estimated by CBRE to range between 4 and 6 percent in 2026. Analysts, including S&P Global Ratings, describe the sector’s condition as an improvement rather than a turnaround, citing persistent oversupply. S&P projects it will take over two years for the market to absorb current and forthcoming office space, even if demand remains steady at last year’s elevated levels.

Broader economic and market developments may underpin the real estate market’s relative strength. Hong Kong’s capital markets have rebounded sharply; the city topped global IPO rankings in 2025 and secured 35 percent of global initial public offering proceeds in the first quarter of 2026, according to KPMG. This resurgence has reinforced Hong Kong’s status as a key international finance hub and gateway to China, bolstering confidence among investors and occupiers.

Demand in the residential market has diversified, supported by upgraders, first-time buyers, luxury purchasers, and mainland Chinese investors. Transactions involving mainland buyers have increased significantly since the removal of property cooling measures in early 2024, with data showing a 163 percent rise over the past two years compared to the prior period. The steady monthly sales exceeding 1,000 units to mainland buyers for over a year suggest this demand is structural rather than short-lived.

In the office sector, demand is predominantly driven by multinational corporations, particularly financial institutions such as hedge funds expanding their presence amid global geopolitical shifts. This trend has contributed to strong leasing activity in core areas, with Central accounting for half of new leases last year. Consequently, premium office buildings in prime locations command notable rental premiums, even within the central district.

Industry professionals note that while the supply-demand imbalance remains a challenge, the peak of new office supply has likely passed, providing a more sustainable foundation for rental growth moving forward. Though the recovery has vulnerabilities and unevenness, these developments represent meaningful progress compared to the fragile and sporadic gains seen in recent years.