Why Morgan Stanley sees more upside in Hong Kong offices than New York towers

In a recent report, Morgan Stanley has identified greater upside potential in Hong Kong's office market compared to New York's, despite both cities facing higher interest rates. The US investment bank highlighted the similarities between the two financial hubs, noting that Hong Kong's monetary policy moves in tandem with the US Federal Reserve, and both cities struggle with limited land supply, expensive housing, and office demand closely linked to the finance sector.

Lead author Praveen Choudhary explained that "higher rates transmit differently into these two cities." "Scarcity matters more than rates. We prefer Hong Kong landlords over New York City office owners or Hong Kong developers."

The office cycle in both cities has turned after years of high vacancy rates due to the Covid-19 pandemic, according to the report. In Manhattan's class A office market, the vacancy rate fell 2.1 percentage points year-on-year to 10.6 per cent in the second quarter of 2026, with leasing rates returning to pre-pandemic levels. Rents in Manhattan rose 4.3 per cent.

Morgan Stanley reported that Hong Kong's prime office market saw a vacancy rate drop to 12.5 per cent in August from 13.5 per cent a year earlier, with Central leading the recovery as vacancy declined to 7.8 per cent from 11.2 per cent. However, capital values in Hong Kong remain 50 per cent below their peak levels.

The report emphasized that location and building quality are more crucial factors than the overall vacancy rate. Morgan Stanley expects Hong Kong's office property cycle to follow a similar trajectory to New York's, with operating fundamentals recovering faster than asset values in both cities. The bank believes this setup is particularly relevant for Hong Kong landlords with exposure to prime office properties.