Hong Kong commercial property distress eases but refinancing challenges remain

Analysts say financial distress in Hong Kong's commercial property market has moderated but not disappeared, with highly leveraged owners still facing refinancing difficulties. The office and retail segments have been in a multi-year slump due to oversupply and high interest rates, leading to loan defaults. However, transaction activity has picked up, with non-residential property deals above HK$50 million rising 120% in the first half of the year.

Transaction volumes in Hong Kong's non-residential property sector reached HK$22.3 billion in the first half of the year, a 120 percent jump from the same period in 2025. Office buildings accounted for roughly two-thirds of that total, or HK$15.1 billion. The pickup in activity comes as borrowing costs have fallen substantially, with the one-month Hibor hovering near 2.6 percent in mid-August, translating to effective funding costs of roughly 4 to 5 percent—down sharply from the 7 to 8 percent range seen at the end of 2023.

Analysts at Colliers note that valuation corrections have largely been priced into current market levels, reducing the likelihood of a fresh wave of defaults. Still, banks continue to offload distressed assets through mortgagee sales, which remain a key channel for recovering cash in a more liquid trading environment. Highly leveraged owners, particularly those with maturing loans, still face difficult refinancing conditions despite the improved market tone.