Hong Kong faces shortfall of up to 59,500 beds for university students, creating opportunity for investors, hotel owners

Hong Kong faces shortfall of up to 59,500 beds for university students, creating opportunity for investors, hotel owners

Hong Kong faces shortfall of up to 59,500 beds for university students, creating opportunity for investors, hotel owners

The situation has led to several conversions of hotels into student spaces in the past two years, with more in the offing in 2024.

Students walk on the campus of Hong Kong University of Science and Technology on October 26, 2023. Photo: May Tse

Non-local student enrolment in postsecondary institutions in Hong Kong is expected to surge 46 per cent to 92,000 by the 2027-2028 academic year, compared with 63,200 in 2022-2023, the property consultancy said.

University-owned beds for non-local students, however, are expected to grow only from 21,000 to 27,000 in the same time frame because of slow construction and a shortage of suitable space for development. So demand for private accommodation is expected to increase from 37,200 to 59,500 beds during the span, an increase of 22,300 beds or nearly 60 per cent.

About 10 three- or four-star hotels in Hong Kong are available for conversion into student accommodation, according to JLL.

Over the past 24 months, the city saw eight hotel transactions, among which five were converted into co-living or private student accommodation, data compiled by CBRE showed.

In January, global investment firm PGIM partnered with Dash Living to buy the 56-key Ovolo Sheung Wan for HK$320 million, aiming to turn it into co-living spaces providing short-term and longer-stay accommodation.

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Meanwhile, local developer Wang On Properties is planning this summer to turn the former 695-room Pentahotel in Kowloon into a 720-room property targeting student renters. It is the company’s first major foray into the hotel sector in the city.

Since interest rate increases began in early 2022, investors have become more cautious about expanding their real estate portfolios, resulting in a decrease in whole-block transaction volumes, said Macro Liao, CBRE’s senior manager for the hotels and hospitality sector in Hong Kong.

“Finding well-located redevelopment sites in the city with convincing return metrics remains challenging in the current market sentiment,” he said.

However, investors maintain “a positive outlook” on the co-living and private student accommodation segments despite the high interest rates, and more hotel transactions for conversion may take place this year, Liao said.

“Student housing is one of the key sectors of the living sector, and there are still investors who are keen to go into this sector,” said Antonio Wu, head of capital markets for Greater China at Knight Frank.

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“I expect this sector will continue to grow, and it would not surprise me to see a couple more projects concluded this year. It is likely that we will see some private equity joint ventures with one or two local operators for hotel conversions.”

Past conversions are proving that the approach can pay off. For instance, rents at Y83, the city’s largest student hostel, which was converted from a 388-room hotel, have grown more than 10 per cent annually between 2022 and 2024, JLL estimated.

Student accommodation assets in Hong Kong are running near 100 per cent occupancy rates, with monthly rent ranging from HK$5,200 to HK$14,800, according to JLL.

Hong Kong will see two to three hotel conversions per year for the next two to five years, which may occur in places close to universities and transport nodes, where the net income from operating a student residence can outweigh that of a hotel, according to Colliers.

“Cash-rich investors and end users, such as universities, with the ability to acquire now and refinance later, may be in the best position to take advantage of any pricing dislocation,” said Shaman Chellaram, Colliers’ senior director in Asia for hotel advisory.

“The high interest rate environment, and the need for refinancing on certain hotels or other assets, is placing some pressure on certain owners, which may result in more favourable pricing for buyers and present more options for conversion.”

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