The recent surge in Hong Kong’s initial public offering (IPO) activities presents a paradox that merits careful examination. While the city celebrates its return as a global fundraising powerhouse, with IPO proceeds jumping eightfold in the first half of 2025, this financial renaissance has failed to lift the commercial real estate sector from its prolonged slump. This disconnect between capital markets’ vitality and physical office demand reveals deeper structural shifts that Hong Kong must address.
The numbers tell a compelling story of two markets moving in opposite directions. Hong Kong raised HK$107.1 billion ($13.6 billion) through 44 IPOs in the first half of 2025, positioning itself to reclaim the global crown from New York. Yet Grade A office rents have fallen 42.8 percent from their 2019 peaks, with vacancy rates staying stubbornly high at 19.3 percent. This divergence challenges conventional wisdom about the relationship between financial-market activity and commercial real estate demand.
Several factors explain this disconnect. First, the nature of modern finance has fundamentally changed. Today’s IPO boom is driven by technology-enabled trading firms and financial institutions that require less physical space per employee than their predecessors. Jane Street’s recent lease of 207,400 square feet (19,270 square meters) for its Hong Kong operations, while significant, represents a fraction of the space that traditional investment banks once occupied. The rise of hybrid work arrangements, accelerated by the COVID-19 pandemic, has permanently altered space requirements across the financial sector.
Second, Hong Kong faces a timing mismatch between supply and demand. Approximately 6.7 million square feet of new office space will enter the market over the next three years, a pipeline conceived during more optimistic times. This surge in supply, combined with tepid net absorption of just 71,400 square feet last quarter, creates downward pressure on rents regardless of IPO activities.
The situation mirrors challenges faced by other global financial centers. London’s Canary Wharf has struggled with similar dynamics, where financial sector employment has grown while space requirements have shrunk. Manhattan’s office market in New York City has experienced comparable disconnects between Wall Street performance and midtown vacancy rates. These parallels suggest Hong Kong’s challenges reflect global trends rather than local failures.
However, Hong Kong’s position offers unique advantages that should not be overlooked. The city’s role as the primary gateway for Chinese companies accessing international capital markets remains unchallenged. With over 200 listing applications in the pipeline and expectations of several megadeals exceeding HK$10 billion each, the IPO momentum appears sustainable. This financial activity, while not immediately translating to office demand, strengthens Hong Kong’s economic ecosystem in ways that extend beyond real estate metrics.
The city’s ability to maintain its status as a premier international financial center while adapting its physical infrastructure to new realities will determine its long-term competitiveness
The concentration of leasing activity in greater Central, accounting for 34 percent of transactions, demonstrates that quality and location still command premium attention. Prime properties in Central, despite overall market weakness, maintain their appeal to international firms requiring prestigious addresses. This flight to quality suggests the market is undergoing healthy consolidation rather than systemic decline.
Looking forward, Hong Kong must embrace this new reality rather than wait for a return to previous patterns. The city should encourage conversion of surplus office space to alternative uses, including residential, hotels, or mixed-use developments. Singapore’s successful transformation of older commercial buildings provides a road map for such adaptations. Additionally, policies that attract technology companies, research facilities, and innovation hubs could diversify demand beyond traditional financial services.
The prediction that rents may not recover until 2032 should serve as a wake-up call for proactive measures rather than passive hope. The government of the Hong Kong Special Administrative Region and its property sector must work together to reimagine the city’s commercial landscape, potentially offering incentives for building conversions and supporting new industries that can absorb available space.
This moment represents an inflection point for Hong Kong. The city’s ability to maintain its status as a premier international financial center while adapting its physical infrastructure to new realities will determine its long-term competitiveness. The current disconnect between IPO success and office market struggles is not a crisis but an opportunity for transformation.
The author is the convenor at China Retold, a member of the Legislative Council, and a member of the Central Committee of the New People’s Party.
The views do not necessarily reflect those of China Daily.
