Aged unchecked office buildings in Hong Kong face up to 20% value erosion by 2026

HONG KONG, 26 May 2025 – Nearly half (44.0%) of Hong Kong's Grade A office space is now over 30 years old, with this proportion expected to increase to 55.1% by 2030. Approximately one-fifth of these buildings are potentially facing functional obsolescence by 2035, making it difficult to attract tenants, according to JLL's latest research report, "Smart Upgrades for Big Impact: Protect the Value of Your Real Estate Assets." The capital and rental values for Grade A offices are projected to decline by over 10% by 2026, with poorly maintained office buildings over 30 years old potentially experiencing declines of up to 20%.

Cathie Chung, Senior Director of Research at JLL, said: “About 97.4% of Grade A office stock in Hong Kong’s CBD was competed before 2015, the highest amongst global gateway cities. With the aging office stock, the market is expected to see an influx of 8.3 million sq ft of new Grade A office supply over the next five years – equivalent to the cumulative net absorption of the past decade – further intensifying competition. Aged office buildings that fail to undergo timely upgrades and refurbishments will struggle to meet rising tenant expectations, facing rental pressure, increasing vacancy rates, reducing operation efficiency, and declining asset values,”

Divided performance between old and new under evident "flight to quality" trend

In recent years, there has been a pronounced "flight to quality" trend, with corporate occupiers favouring modern, flexible office spaces that meet evolving sustainability standards. This shift is driven by the rise of hybrid working models, increasingly stringent Environmental, Social, and Governance (ESG) criteria, growing demand for tech-enabled workplaces, and a focus on employee well-being and brand image.

Market data from 2024 underscores this shift: buildings aged 0-5 years recorded a net absorption of over 1 million sq ft, whereas those over 30 years old saw a negative absorption of 44,000 sq ft. Currently, old and new office buildings have similar vacancy rates, and the rental gap has narrowed to a historic low of HKD 2.9 per sq ft. This trend is expected to attract more tenants to relocate to high-quality spaces once their leases expire.

“With the continuous influx of high-quality office space, rental incentives alone are no longer sufficient to attract corporate occupiers. We anticipate this rental gap will widen significantly upon market recovery,” she added. “Office buildings are now more than just workplaces; they are strategic tools for attracting and retaining talent, showcasing corporate culture, and demonstrating a commitment to sustainability. Businesses are prioritising spaces that enhance employee experience, align with their brand positioning, and improve their ESG performance – areas where newer buildings often have a distinct advantage. Furthermore, we anticipate that capital and rental values for Grade A offices will decline by over 10% by 2026, with buildings over 30 years old potentially experiencing declines of up to 20%. Aged buildings that fail to proactively upgrade risk losing market appeal and experiencing escalated value erosion,”

From minimum intervention to major redevelopments: Strategic retrofits revitalise ageing Grade A offices

JLL underscores the importance of strategic enhancements in preserving the asset value of office buildings. Systematic upgrades to building facilities not only enhance tenant satisfaction and leasing demand but also improve operational efficiency and property performance, thereby strengthening market competitiveness. Indeed, various ageing Grade A office buildings that have undergone enhancements remain highly sought after by tenants.

Chung Chi-hung, Head of Property and Asset Management at JLL in Hong Kong, said: "For properties unsuitable for large-scale retrofit, landlords can consider cost-effective light retrofits that focus on improving common areas and basic amenities, minimising disruption to tenant operations while delivering noticeable short-term improvements. Our analysis indicates that initiatives such as Building Management System (BMS) and air conditioning chiller optimisation, along with the instillation of LED lighting and smart sensors can typically save around 16.8% in annual energy costs, with a payback period of less than one year,”

As a result of the improved operating efficiency, light retrofit strategy delivers HKD 20 million in average annual NOI gains versus the base-case scenario, while simultaneously safeguarding against 5.3% asset value erosion, an effective defensive strategy typically under the current down cycle. Meanwhile, aged properties that do not undergo refurbishment may face value erosion of 20.3%. Landlords should carefully evaluate various upgrade pathways based on their property's condition and market positioning to develop the most appropriate asset strategy, ensuring long-term returns while strengthening their competitive advantage.

Buildings facing with severe ageing issues or tenant churn should consider deep retrofits. These involve comprehensive upgrades to the property's structure, systems, services, and functionality, such as redesigning and refinishing all landlord areas and toilets, refitting façades, and obtaining ESG certifications. These measures fundamentally enhance asset quality and operational efficiency, addressing functional obsolescence. Analysis shows that over a ten-year period, properties undergoing deep retrofits experience a 9-percentage point lower average vacancy, a 4.6% rental premium, and an average annual gain in NOI of HKD 33 million over the base-case scenario. Such upgrades also effectively mitigate the erosion of asset value.

Focusing on energy efficiency for rapid returns

Enhancing energy efficiency is a straightforward way to improve cash flow and operational efficiency. Numerous cost-effective, yet often overlooked, energy-saving measures and light retrofit opportunities that offer short payback periods and significant returns. Our illustrative cases demonstrate that an investment of approximately HKD 745,000 in energy efficiency upgrades can deliver annual savings of HKD 435,000, with a payback period of just 1.7 years. The BMS and chiller upgrades at

Hing Wai Building in Central invested HKD 24 million to install 3D LED TV video wall on the façade, which generated over HKD 26 million annually in advertising revenue. The income is equivalent to more than 10 office floors and achieved breakeven in less than one year.

"Hong Kong's office market is set to remain challenging in the near to mid-term. Newly built or refurbished properties tend to demonstrate greater market adaptability and resilience, enabling landlords to quickly capitalise on rebound opportunities as the market recovers. Now is a critical time for landlords to reassess their assets and take decisive action. In response to intensifying competition and shifting tenant demands, landlords should develop an asset enhancement strategy with phased options after comprehensive evaluation. They should adjust priorities and implementation timelines in accordance with market dynamics, asset-specific features, and external factors, ensuring a balanced approach that maximises value while effectively managing risks and resources," said Cathie. 

^{(Left to right) Cathie Chung, Senior Director of Research; Chung Chi-hung, Head of Property and Asset Management}