July 26, 2026, Hong Kong — Against the backdrop of a globally loosening interest rate environment, the Hong Kong real estate investment trust (REITs) sector demonstrated strong return potential in the first half of 2026. As of July 25, the Hang Seng REITs Index had risen 13.8% year-to-date, outperforming the Hang Seng Index's 8.2% gain over the same period, with heavyweight stocks such as Link REIT (0823.HK) and Prosperity REIT (0778.HK) serving as the main drivers of the sector's upward momentum.
1. Market Performance: High-Yield Assets' Appeal Stands Out
Since the beginning of this year, following successive rate cuts by the Federal Reserve and the Hong Kong Monetary Authority, HKD market interest rates have declined, widening the yield spread of REITs relative to government bonds. Currently, the average dividend yield of the Hong Kong REITs sector is approximately 6.8%, while the 10-year HKD government bond yield is only 3.2%, resulting in a spread of 360 basis points, which has attracted significant inflows from institutional investors seeking stable returns.
As one of the largest REITs in Asia, Link REIT saw its share price rise 14.5% in the first half of 2026, with a dividend yield of 6.2%. The company's results for fiscal year 2025/2026 showed its Hong Kong retail property occupancy rate remained above 97%, and its mainland China property portfolio revenue grew 8.3% year-on-year. Prosperity REIT benefited from a recovery in Hong Kong's leasing market, with a share price increase of 16.1% and a dividend yield of 7.1%. In addition, SF REIT (2191.HK), focused on logistics and warehousing, and Champion REIT (2778.HK), focusing on Grade A office properties, recorded gains of 11.2% and 9.8%, respectively.
2. Industry Background: Falling Rates and Fundamental Improvements
Since the end of 2025, the aggregate balance of Hong Kong's banking system has rebounded, and the 1-month HIBOR has fallen from a high of 5.0% to around 4.2%, significantly reducing REITs' financing costs. Meanwhile, Hong Kong's retail and office leasing markets have gradually recovered — the core area retail vacancy rate dropped to 6.5% in Q2 2026, and Central Grade A office rents rose 1.2% quarter-on-quarter, providing stable cash flow support for REITs.
Notably, the valuation of the Hong Kong REITs sector remains at historically low-to-mid levels. The current price-to-book ratio (P/B) is approximately 0.85 times, representing a discount of about 23% from the 2020 peak of 1.1 times, while dividend yields are above the five-year average (average around 6.2%). Analysts believe that if interest rates continue to decline moderately, the valuation recovery potential of REITs could be further unlocked.
3. Cross-Border Perspective: Hong Kong REITs vs. Thai REITs
For investors deeply involved in Thai REITs, Hong Kong REITs offer similar defensive attributes but with more mature liquidity and market regulation. The average dividend yield of the REITs sector on the Stock Exchange of Thailand (SET) is about 7.2%, slightly higher than that of Hong Kong, but Hong Kong REITs have larger market capitalizations, more active trading, and relatively lower currency risk (HKD is pegged to the USD). Additionally, about 30% of the assets in Hong Kong REITs are located in mainland China and overseas, providing regional diversification advantages.
Taking Link REIT as an example, its mainland asset portfolio covers retail properties in first-tier cities such as Beijing, Shanghai, and Guangzhou. Its full-year 2025 same-store sales grew 5.6%, complementing Thai REITs' heavy reliance on the domestic economy. Investors can directly trade Hong Kong REITs through Stock Connect, bypassing the cumbersome process of opening offshore accounts, making it a convenient channel for cross-border REIT allocation.
4. Outlook and Risk Reminders
Looking ahead to the second half of 2026, some brokerages expect the Hong Kong REITs sector to have further upside: if the anticipated US rate cut in September materializes, HKD interest rates will decline further, and high-yield assets will continue to attract strong demand. However, attention should be paid to the following risks: first, Hong Kong's economic recovery falling short of expectations, which could pressure retail and office rents; second, interest rate trends being volatile, as inflation data exceeding expectations could slow the pace of rate cuts; third, fluctuations in the RMB exchange rate affecting the net profits of REITs holding mainland assets.
In summary, driven by the dual engines of a low interest rate environment and fundamental improvements, Hong Kong REITs as high-yield defensive assets have prominent allocation value. Investors can focus on top-tier targets with high-quality assets, low leverage, and stable dividend records, while dynamically balancing with Thai REITs based on their own risk preferences.
