Confidence improves Hong Kong construction outlook
After starting slow in 2025, Hong Kong’s construction industry is showing signs of improvement. Public sector investment is expected to lead most of the activity, with projects spanning healthcare, education and the Northern Metropolis plan setting the pace. While key opportunities are emerging, there is also a need to address persistent constraints.
Market gains traction in Q2 after a slower Q1
H1 2025 opened with restrained activity from multinational corporations, particularly US firms, amid broader economic caution. Despite subdued conditions, there is desire among developers to invest, even in a challenging market. However, persistent skilled labour shortages and rising costs continue to affect feelings about the economy, setting a cautious tone for the first half of the year.
Amid global uncertainty, the first half of 2025 was marked by private sector hesitation, particularly among multinational occupiers and investors. Uncertainty surrounding President Trump’s tariffs announcements and refinancing challenges further reduced confidence, contributing to a slower Q1.
The wider economy, however, showed solid growth with Hong Kong’s real GDP rising 3.1 percent year on year in Q1. Strong goods exports surged 8.4 percent, driven by loaded shipments ahead of US tariffs.
However, Q2 brought some positive momentum, led by logistics, life sciences and education sectors, both public and university-funded. Investments came from insurers and local Chinese firms, which demonstrated a longer-term commitment to the city.
With new-build supply expected to enter the market, a flight to quality trend should continue to build. A key turning point was the Hong Kong budget announcement. It included a stronger commitment to infrastructure and public projects than expected.
While residential property values remained relatively stable, developer liquidity and refinancing constraints remain significant hurdles. Despite global uncertainties, Hong Kong’s adaptive strategies, especially in trade and technology, position it as a resilient hub in a shifting global economy.
Government investment paves the way for a stronger H2
Despite continued cautious economic activity, Hong Kong has seen strong Initial Public Offering (IPO) activity year to date. With a robust pipeline of deals anticipated for the remainder of the year, it can reaffirm its position as a leading finance and real estate hub in the region, if not globally.
Additionally, there are promising opportunities in Building Information Modelling (BIM), digital innovation and contract administration. However, skilled labour shortages must be addressed to fully capitalise on these prospects.
Looking ahead to H2, sentiment is cautiously improving. Lower interest rates and a softening US dollar is expected to support renewed activity. This is particularly in the corporate occupier and life sciences sectors, and in advancing project planning stages.
Our Global construction market intelligence expects tendering conditions to remain stable. However, the reduced number of projects in the market has made tendering conditions increasingly competitive. Longer-term support is expected from the large public infrastructure projects, such as the Northern Link Railway, San Tin Technopole and Green Transit Systems.
Several key sectors are anticipated to outperform in the coming months. Firms with strong digital and contractual expertise will be well positioned to support government-led programmes, particularly under BIM and NEC3 mandates.
With approximately 3m sq ft of new supply coming on the market in 2025, the trend for quality in the corporate occupier market should continue. Life sciences and select professional services sectors are demonstrating resilience and should see sustained demand.
Geo-political tensions may continue to weigh on investor and occupier confidence, and there is evidence of escalating unemployment in some sectors. However, the resilience demonstrated by Hong Kong’s fit out market H1, particularly over Q2, is expected to carry through into H2.
There is a growing acceptance of a ‘new normal’, with capital expenditure now cautiously committed to projects that would previously have been delayed. We anticipate incremental growth, especially if China and the United States can reach a trade agreement.
The tender price index has demonstrated a marginal decline in 2025, which is being impacted by several different factors. This includes competition in the industry, a rise in labour costs and general worker wages, and relatively stable material costs due to China’s self-sufficient supply chain.
Macroeconomic trends are also encouraging as expectations of further interest rate cuts in the US, combined with a weakening US dollar, are creating a more favourable backdrop.
A softer currency is also likely to boost inbound tourism and reduce overseas spending by Hong Kong residents. With proactive government spending, these factors suggest a possible market shift, driven by optimism and forward-looking strategies.
Digital transformation exposes a skills gap
Digital transformation is increasingly becoming a strategic priority, yet adoption remains uneven. The Development Bureau (DeVB) is driving change by adopting digital controls for government programmes.
The adoption of BIM and NEC3 contract frameworks across public infrastructure projects is exposing a critical skills gap. Limited local expertise in these areas poses a delivery risk for major public programmes, like the upcoming Northern Metropolis.
Upskilling efforts are in motion, but these will take time. In the meantime, reliance on international expertise and advisory support is a short-term solution.
Without targeted interventions, labour shortages could delay delivery and drive-up costs as competition for qualified professionals intensifies.
While mandates such as BIM and NEC3 are pushing the industry forward, broader innovations such as artificial intelligence (AI), automation and smart delivery platforms are still under used.
Project delivery continues to be weighed down by administrative tasks that could be streamlined through digital tools. Some firms are beginning to explore AI-driven solutions for cost planning, documentation and project monitoring, but many remain hesitant to move away from traditional workflows.
Those embracing digital solutions are increasingly adopting integrated delivery partnerships, reflecting a broader push toward cost-effective, modern methods.
Modernising, digitalising and addressing labour gaps
With public sector investment accelerating and interest rates trending down, H2 presents a cautiously optimistic outlook for Hong Kong. To capitalise on this momentum, the industry must align with evolving government priorities. They must also embrace digital tools and address skilled labour shortages.
Success will depend on the industry’s ability to modernise and digitalise delivery, build confidence and bring clarity to markets still in transition. With the right focus, H2 2025 offers a chance to turn transition into lasting progress.