Attracting foreign institutions might prove difficult amid the commercial property sector’s elevated vacancy rates and uncertain recovery
Hong Kong’s government-backed investment fund is being redeployed to support the city’s sluggish commercial property sector, signaling authorities’ growing willingness to use public funds as a policy tool to steady office valuations and align real estate investment with the city’s industrial ambitions.
Attracting foreign institutions, however, might prove challenging. The city’s elevated vacancy rates, looming new completions and uncertain rental recovery have kept global funds on the sidelines, while acquisition costs – combined with the capex required for conversion – may compress returns, according to analysts.
In his latest budget, Financial Secretary Paul Chan Mo-po said the Hong Kong Investment Corporation (HKIC) would partner with regional and international “long-term capital” to channel funds into “high-quality commercial projects”.
According to HKIC chief executive Clara Chan Ka-chai, the strategy would create “deep synergy between industry and space”, channelling long-term capital into commercial assets. She said it is expected to support enterprise development, while delivering medium- to long-term returns.
Although market sentiment saw a recovery last year and the leasing market returned to activity, the overall vacancy rate for grade A office space remains high at 17.5 per cent, with a total vacant area approaching 15 million square feet. The market still requires time to absorb the new supply completed over the past few years, according to a property agent.
Established in 2022 as a wholly government-owned investment vehicle, HKIC was created when parts of Western institutional capital were pulling back from Hong Kong amid heightened geopolitical tensions. Its initial mandate focused on strategic sectors including hard technology, life sciences and green energy, with the aim of anchoring future industries in the city.
The move to redeploy HKIC’s funds confirmed an earlier South China Morning Post report. It signalled a vote of confidence in the HKIC and an expansion of its remit, while remaining strictly within the investment sphere rather than property ownership or management, according to an SCMP report last week.
“The government wants to co-invest in commercial property projects that can help develop Hong Kong’s industrial and technological positioning,” said Gary Ng, a senior economist at French bank Natixis. He added that HKIC is increasingly functioning as a policy transmission tool.
Hong Kong’s equity market rebounded in 2025, allowing the city to reclaim its position among the world’s top venues for initial public offerings (IPOs). Alongside that recovery, HKIC’s portfolio matured and generated HK$2.3 billion (US$294 million) in investment income last year.
HKIC’s move into commercial real estate would mark a notable expansion of its mandate at a time when Hong Kong’s IPO market has attracted strong liquidity, even as the office sector struggles for capital.
“The new measures may introduce additional demand into the commercial investment sector and could encourage some investment funds to re‑enter the market,” the agent said.
Weak leasing demand and uncertain rental prospects have discouraged major funds from deploying significant capital. For example, Boston-based pan-Asia property manager AEW has not made a new Hong Kong acquisition since 2022, citing difficult market conditions.
AEW’s head of Greater China, Athena Tse, welcomed the HKIC initiative as a “positive signal”, noting that domestic capital had begun reallocating into real estate after years of post-pandemic suppression. Still, she cautioned that prices for high-quality grade A assets had remained relatively resilient.
“Higher acquisition costs – combined with the capex required for conversion – may compress returns and make large-scale conversion strategies less compelling,” Tse said. More attractive opportunities involved acquiring under-managed assets at distressed levels and repositioning them into living products, she added.
“Currently, the market only has limited investors, with most of the potential buyers actively seeking acquisition opportunities in Hong Kong’s commercial investment market being end users,” the agent said.
Mainland investors with long-term plans in Hong Kong have been snapping up prime offices since last year. These included high-profile transactions by Alibaba Group Holding and fintech affiliate Ant Group, as well as JD.com. Alibaba owns the SCMP.
“I would not be surprised if more mainland capital steps up, as a gesture to support the Hong Kong government’s policy,” Ng of Natixis said.
