Strengthened government policies to develop Hong Kong into a post-secondary education hub will fuel renewed demand for student housing, with investors reacting positively to enter the market
In the Hong Kong Government’s 2024 Policy Address, Chief Executive John Lee reiterated the importance of expanding the city’s supply of student hostel rooms. His comments build upon the intent demonstrated in the 2023 Policy Address, in which the administration unveiled an ambitious plan to build an international hub for post-secondary education by expanding the admission quota of non-local students. Cushman & Wakefield’s Hong Kong 2024 Policy Address Insight provides deeper analysis.
Additionally, of the policies supporting the government’s objective to “trawl for talent” as announced in the 2022 Policy Address, the key Top Talent Pass Scheme saw more than 50,000 successful admissions through the 2022–2023 period. This sustained arrival of new non-local talent and incoming non-local students into Hong Kong has boosted demand for rental housing in the city, in turn pushing up rental values in the private residential market.
Shortage of Student Beds is Set to Escalate
With a focus on attracting international students, Hong Kong’s government has announced a target to expand non-local students’ share of total students at University Grants Committee (UGC) funded universities from 20% to 40%, equating to an extra 20,000 non-local students.
The influx of new arrivals combines with an existing shortfall in student housing in the city. Cushman & Wakefield’s most recent Hong Kong Talent Housing report examines how the current student-to-bed ratio at Hong Kong universities means that existing student hostel capacity is insufficient to meet accommodation needs. Our latest data indicates that, on average, more than three students are currently competing for a bed on campus at Hong Kong’s eight major universities. And ahead, the shortfall arising from our potential demand / supply gap projection will exceed 47,000 student beds in the coming period.
Such strong projected demand undoubtedly creates business opportunities for private real estate investors and student hostel operators alike. These players have reacted quickly to the potential growth in demand and have commenced searching for suitable assets. Some operators have identified the potential of 3-star and 4-star hotels located near university campuses, and are moving to convert existing hotel rooms to single or double bed formats, while retaining the original hotel license and rebranding the assets as student housing.
Existing Hotel Assets Offer Short Conversion Periods With Substantial Upside
Asset conversion or upgrade projects to transition a traditional hotel property to student accommodation generally have moderate lead times, at four to six months, while the cost of the conversion is typically at approximately 5% to 10% of the original hotel asset value. However, the final student accommodation product could potentially be at 150% of the original hotel asset value. Such conversion projects will normally include transforming existing hotel facilities, including restaurants, conference rooms, gym facilities, and back-of-house areas, into student accommodation-related facilities such as libraries, meeting areas, dining areas, kitchens or pantries, laundry rooms, game areas, and mini cinemas.
High-quality hotel-to-student accommodation conversions typically return high occupancy rates. These hotel-licensed student accommodation properties can achieve an average rate of HK$8,000 per bed per month, providing strong investment returns to landlords and their investors.
Indeed, reports from Cushman & Wakefield’s Hong Kong clients reveal that some student housing operators have achieved occupancy rates of 95% or above shortly after project conversion completions, with the occupancy rate then remaining high throughout the academic year.
Student-Oriented Accommodation Facilities Yield High Occupancy and Strong Investment Returns
One of the biggest competitive advantages of private student accommodation projects is their ability to provide student-oriented products to their target tenants. Operators have effective measures to ensure that residents are university students, as all tenant applicants are required to show proof of university admission upon application.
All student accommodation rooms are fitted with a bed, a study desk, and a wardrobe, hence ensuring that foreign students do not have to worry about acquiring furniture when they first arrive in Hong Kong. The common areas within the building also give new arrivals opportunities to meet fellow students and can provide a healthy study experience throughout the semester. As a result, non-local students’ parents and families are comfortable with this type of affordable student accommodation for their children and siblings, rather than renting a one-bedroom apartment typically costing $15,000 or more from a private landlord.
This new real estate market concept of converting existing hotel assets to student accommodation is expected to be a growing trend ahead. We anticipate that more conversion cases will emerge, helping the market to provide more private sector student accommodation solutions to the fast-growing non-local student population.
The 2024 Policy Address also highlighted a pilot scheme to streamline the application process in relation to planning, land and building plans to encourage the market to convert other commercial buildings into student hostel properties. Cushman & Wakefield welcomes the initiatives proposed by the government and we look forward to potential new measures or relaxation of existing regulations that will help landlords and investors to bring more student accommodation products to the market. Looking ahead, we expect these combined measures to help boost Hong Kong’s intent to develop a world-class international hub for post-secondary education.
Cushman & Wakefield’s Capital Markets team in Greater China specializes in high-value investment brokerage and advisory services, covering all asset classes. With a proven track record of over 100 investment deals totaling more than RMB100 billion from 2019 to 2022, we are well-equipped to assist institutional investors. For your views or questions on this post, or to discuss your business requirements, please contact me at alfred.kwan@cushwake.com.
