Proprietary funds miss out on tax concessions, but the recovery logic for Hong Kong CBD offices remains intact

Overview

The report assesses the impact of Hong Kong's proposed preferential tax regime for funds and carried interest on the office market. On August 12, 2026, the government clarified that proprietary funds are outside the scope, but the bill still proposes to broaden the scope of eligible funds, investment assets, and paying entities, and to apply a 0% tax rate to eligible carried interest. JPMorgan believes this clarification reduces the upper bound of the policy's potential beneficiaries, but does not change the direction of recovery in CBD office demand driven by growth in asset managers and family offices.

Core views

The core views include: first, proprietary trading businesses do not meet the definition of a “fund” because participants have day-to-day control over assets and use their own capital to generate returns; second, non-proprietary hedge funds, family offices, private credit, real estate funds, and others may still benefit, potentially enhancing Hong Kong's appeal as an asset management center; third, financial institutions tend to cluster, and Central, Admiralty, and West Kowloon will be the main areas absorbing office demand; fourth, Central rents have already entered a recovery phase, with room for mid-single-digit growth in the second half of 2026; fifth, Hongkong Land is the best stock exposure due to its highest CBD office exposure, while Swire Properties, Henderson Land, and Champion REIT also have varying degrees of beneficiary exposure.

Analysis framework

The report first compares the current tax regime with the 2026 draft bill to define the boundaries of eligible funds, asset classes, carried interest, and proprietary businesses; it then combines the number of Hong Kong asset managers and family offices to conduct scenario analysis of potential office demand from new institutions; next, it maps incremental demand to major landlords using attributable floor area and the proportion of CBD offices in total asset value; finally, it uses JLL data on rents, vacancy rates, supply, and net absorption to judge the pace of industry recovery.

Methodology notes

• Policy analysisComparison of current regime and draft bill

  Scope of tax concession applicability

  Compares rules on fund strategies, eligible assets, fund certification, hurdle rates, paying entities, employee holding vehicles, and effective dates to determine which asset management businesses may receive a 0% carried interest tax rate.

• Scenario analysisEstimation of office demand from new institutions

  Number of institutions multiplied by average leased area

  Assumes 300 new institutions and an average lease area of 2,000 square feet per institution to estimate about 600,000 square feet of incremental demand, and compares this with 2026 net absorption and the existing vacancy rate; this result is a sensitivity analysis rather than a definitive forecast.

• Asset mappingComparison of core business district exposure

  Floor area and total asset value exposure

  Uses attributable office area in Central, Admiralty, and West Kowloon, as well as its proportion of each landlord's total asset value, to compare the relative impact of policy-driven demand improvement on different companies.

• Industry cycle analysisAssessment of rent and vacancy rate recovery

  Linkage among rents, net absorption, and vacancy rates

  Combines JLL office data to observe the relationship among rental rebound from trough levels, demand absorption, and vacancy rate declines, in order to assess the sustainability of the recovery in Hong Kong CBD offices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hongkong Land（HKLD.SI）

  Core preferred beneficiary stock

  Strengths

  Owns about 4 million square feet of attributable lettable area in Central, with CBD offices accounting for about 44% of total asset value, making it the most sensitive to improvements in Central rents and occupancy.

  Weaknesses

  High concentration in core business districts means earnings are more dependent on the Hong Kong high-end office cycle and leasing demand from financial institutions.

  Comparison

  Its CBD offices as a proportion of total asset value are higher than Champion REIT, Henderson Land, and Swire Properties, and the report views it as the best exposure to the Central office recovery.

  Risks

  Policy implementation or the number of new institutions may fall short of expectations, office demand may spill over to non-core areas, and Hong Kong office recovery may slow.

• Swire Properties（1972.HK）

  Major beneficiary

  Strengths

  Holds about 2.2 million square feet of CBD offices through Pacific Place in Admiralty, enabling it to benefit from clustered demand from financial institutions in Admiralty.

  Weaknesses

  CBD offices account for only about 14% of total asset value, implying lower relative beneficiary sensitivity than Hongkong Land and Henderson Land.

  Comparison

  Its relative CBD exposure is lower than Hongkong Land's 44%, Champion REIT's 41%, and Henderson Land's 21%.

  Risks

  Limited scale of incremental leasing demand, financial institutions preferring Central, and overall office supply pressure.

• Henderson Land（0012.HK）

  Major beneficiary

  Strengths

  Holds about 3.3 million square feet of CBD offices through IFC, The Henderson, and Central Yards under construction, with the project portfolio covering prime Central locations.

  Weaknesses

  Part of the benefit depends on projects under construction being delivered on schedule and successfully leased; CBD offices account for about 21% of total asset value, lower than Hongkong Land.

  Comparison

  Its relative exposure is higher than Swire Properties, but lower than Hongkong Land and Champion REIT.

  Risks

  Leasing progress of new projects, increased supply, development execution risk, and insufficient actual demand generated by the policy.

• Sun Hung Kai Properties（0016.HK）

  Beneficiary of West Kowloon office demand

  Strengths

  Owns about 5.3 million square feet of office portfolio in West Kowloon, including ICC, IGC, and Artist Square Towers, with a relatively large absolute floor area.

  Weaknesses

  CBD offices account for about 5% of total asset value, so policy-related demand has a relatively limited impact on the group's overall value.

  Comparison

  Its absolute office area is relatively large, but its CBD exposure by total asset value is significantly lower than Hongkong Land, Henderson Land, and Swire Properties.

  Risks

  Incremental demand from financial institutions may be more concentrated in Central or Admiralty, and competition from new supply in West Kowloon.

• Champion REIT（2778.HK）

  High-exposure potential beneficiary, but not covered by JPMorgan

  Strengths

  CBD offices account for about 41% of total asset value under the report's methodology, giving it high sensitivity to improvements in occupancy and rents in core areas.

  Weaknesses

  The report does not formally cover the company, and its total asset value data uses portfolio valuation disclosed by the company rather than JPMorgan estimates.

  Comparison

  Its relative exposure is second only to Hongkong Land and higher than Henderson Land and Swire Properties.

  Risks

  Market cycle risk from high concentration, limited actual policy-driven uplift, and lack of formal rating and target price support within the report.

Key data

• Central office rent reboundUp 9% from the third-quarter 2025 troughThe report expects mid-single-digit growth to continue in the second half of 2026.
• Hong Kong licensed asset managersApproximately 2,400The compound annual growth rate over the past decade was about 6%; the table shows the specific number as 2,358.
• Hong Kong licensed asset management practitioners15,700 peopleUsed to illustrate the scale of Hong Kong's existing asset management ecosystem.
• Hong Kong family officesApproximately 3,400The table shows the specific number as 3,384.
• Incremental office demand under the scenario assumption600,000 square feetAssumes 300 new institutions, each leasing an average of 2,000 square feet.
• Incremental demand as a share of expected 2026 net absorption35%Uses JLL's forecast for the Hong Kong office market as the comparison benchmark.
• Scenario vacancy rate for Hong Kong Grade A officesFalls from 13.1% to 12.5%Pro forma calculation based on 600,000 square feet of incremental demand.
• Scenario vacancy rate for Central officesFalls from 8.8% to 7.3%Assumes all new institutions lease Central offices, which is a relatively positive scenario.
• Hongkong Land CBD office exposure44% of total asset valueThe highest relative exposure among the major landlords compared in the report.
• Proposed tax rate for eligible carried interest0%The bill is still subject to completion of the legislative process; proprietary funds are not eligible.

Impact & implications

The policy impact mainly works by expanding the scale of qualified asset managers and family offices established in Hong Kong, converting into office demand in core business districts. Because financial institutions tend to cluster in Central, Admiralty, and West Kowloon, landlords with relevant high-end office portfolios may gain support for higher occupancy, rental bargaining power, and asset valuations. The exclusion of proprietary funds means potential incremental demand is lower than the market's previously most optimistic expectations, but the existing policy scope is still sufficient to provide marginal support for the recovery. From an investment perspective, priority should be given to landlords with higher CBD exposure and stronger office portfolio quality, while distinguishing between companies explicitly covered in the report and the uncovered Champion REIT.

Risks

• Singapore is considering similar tax concessions for fund managers, which may weaken Hong Kong's relative advantage in attracting new institutions.
• Global tax scrutiny of offshore trusts and insurance products held by mainland Chinese individuals may offset some asset management and office demand.
• The bill is still under review by a Hong Kong Legislative Council bills committee, and the final terms, timing of passage, and scope of application remain uncertain.
• The assumptions of 300 new institutions and an average lease area of 2,000 square feet are scenario assumptions; the actual number of institutions, leased area, and location choices may deviate significantly.
• The calculation that Central's vacancy rate falls to 7.3% assumes all new institutions move into Central, which is a relatively positive assumption.
• New office supply, macroeconomic slowdown, or cost reductions by the financial industry may suppress the recovery in rents and absorption.

What to watch

• The timing of the Hong Kong Legislative Council's resumption of the second reading debate on the bill in the second half of 2026 and its final passage.
• The final definitions and implementation details for proprietary businesses, family offices, hedge funds, and other eligible funds.
• The number of new asset managers, funds, and family offices registered in Hong Kong after the bill is passed.
• Changes in net absorption, vacancy rates, and renewal rents in Central, Admiralty, and West Kowloon.
• Leasing progress of core offices at Hongkong Land, Henderson Land, and Swire Properties.
• The scope, tax rates, and implementation timing of similar tax policies in Singapore.
• The impact of global tax scrutiny of offshore trusts and insurance products on Hong Kong wealth management activity.