Core Insights - UBS reports that the office market in mainland China faces challenges due to ample supply, while there are clear signals indicating a recovery in the Hong Kong office market [1] - UBS believes that the Grade A office market in Central Hong Kong is nearing its bottom as supply is expected to decrease between 2026 and 2027, which will benefit stocks with Grade A office business in Hong Kong [1] Summary by Category Hong Kong Office Market - The recovery of the Hong Kong office market is expected to continue benefiting companies such as Swire Properties (01972), Swire Pacific Ltd A (00019), Land Lease, Hysan Development (00014), and Henderson Land Development (00012) [1] - UBS indicates that the Grade A office market in Central Hong Kong is approaching a bottom due to a decrease in supply expected in the coming years [1] Shanghai Office Market - According to CBRE data, Shanghai office rents decreased by 0.8% quarter-on-quarter in Q3 [1] - The supply of office space in Shanghai increased by 116,000 square meters due to the completion of two new buildings, while net absorption rose by 6.7% to 100,000 square meters [1] - UBS anticipates that 820,000 square meters of new supply will enter the Shanghai market in the next six months, and due to ample supply in the next two years, office rents in Shanghai are expected to continue declining next year [1]

Core Insights - The Hong Kong office leasing market is showing signs of demand recovery despite structural challenges such as interest rate pressure, weak demand, and oversupply [1][2] - The financial sector's recovery, active property acquisitions by end-users, and government policies driving relocation demand are injecting new momentum into the market, particularly in the prime areas of Central [1][2] Group 1: Market Trends - The report from Savills indicates that medium-sized hedge funds and quantitative funds are actively entering the core areas of Central, leasing spaces of 1,500 to 5,000 square feet, which is driving demand for landmark properties like the International Finance Centre and AIA Financial Centre, maintaining rents at HKD 110-130 per square foot [1] - Secondary locations in Central are seeing rents generally between HKD 40-60 per square foot, creating direct competition with high-quality Grade A properties in Causeway Bay and West Kowloon [1] Group 2: Future Projections - For the fiscal year 2025, several large self-use transactions are expected, with entities like the Hong Kong University of Science and Technology and the Hong Kong Bar Association absorbing over 430,000 square feet, which will help mitigate the ongoing market decline [1] - A new policy allowing commercial buildings to be converted into student dormitories is projected to generate a relocation demand of 845,000 square feet annually, with about half expected to be absorbed by Grade A offices in the area, serving as a new driver for market recovery [1] - Hong Kong regained its position as the global IPO fundraising leader in the first half of the year, raising over HKD 107.1 billion, which is anticipated to create significant opportunities for investment banks and professional service firms, further supporting demand for core area office spaces [2] - If the financial sector continues to recover, the annual absorption of office space in Hong Kong is expected to return to pre-pandemic levels of 1.3 million square feet, with an additional 400,000 square feet from user acquisitions and another 400,000 square feet from relocation demand, leading to a total annual absorption of 2.1 million square feet [2] - Under optimistic scenarios, the vacancy rate is projected to peak at 16% by 2026, gradually declining to 6% by 2030, which may trigger a rebound in office rents [2]