_Investing in Student Living: Opportunities in Hotel Conversions

The student accommodation market in Hong Kong presents a unique investment landscape, particularly with the growing trend of converting underperforming or distressed hotels into student housing.

This research paper delves into the key drivers behind this trend, including the rising non-local student population and the significant gap between the demand and supply of student accommodation. In our analysis, we highlight successful case studies that showcase the effective transformation of hotels into student residences. By examining the investment returns associated with these conversions, we provide a comprehensive overview that can guide potential investors in making informed decisions in this burgeoning sector.

The Growing Demand for higher education in Hong Kong

Hong Kong has long been renowned for its internationalised higher education. Supported by the Hong Kong government’s initiatives to promote the “Study in Hong Kong” brand, including increasing the admission quota for UGC-funded universities non-local undergraduates from 20% to 40% and providing substantial funding to higher education institutions, there has been a significant influx of overseas students in recent years.

Student housing supply shortage

Amid the continued growth in demand for student accommodation, the pace of new deliveries has slowed, leaving many students unable to access on-campus university halls of residence or purpose-built / private student dormitories.

According to our research, there are currently around 35,720 beds available across 12 institutions for on-campus university halls of residence. However, with 62,079 students’ visa / entry permit applications approved in 2023, there is a significant shortfall of 23,389 beds.

Investors are responding by converting hotel properties into student accommodations to address this gap.

Future Supply Pipeline

The government recognises the hostel space shortage and has initiated multiple projects, aiming to add about 7,900 beds from June 2024 to 2027. The UGC funded universities are also working on projects to increase bedspaces by approximately 13,500 by 2027. Overall, the total supply of student accommodation, including beds from private operators, On-Campus University Halls of Residence, future hotels convert to private student dormitories and upcoming student hostel projects, is expected to reach 55,000 beds by 2028. This increase is essential to meet the demand from an estimated 97,857 non-local students in the 2027/28 academic year.

Benefits of Investing in Student Accommodation

Stable returns

Student accommodation typically provides stable returns, as students often enter into year-long leases, ensuring a steady income for property owners. Moreover, the one-year tenancy term allows landlords to adjust rents more frequently, enabling a quicker response to market changes.

High occupancy

Student accommodation often enjoys high occupancy rates, given that students generally require accommodation for the entire academic year. This leads to predictable rental income, which is appealing to property owners.

Lower operation costs

Student housing typically incurs lower overall costs compared to hotel operations. Unlike hotels, which often provide a wide range of luxury services and amenities, student housing emphasises the essential needs of students. This includes basic accommodations, communal spaces for studying and socialising, and facilities like laundry and kitchens.

Willis Mak, Executive Director, Head of Private Clients, Greater China said, “The government increases the admission quota for non-local students, doubling the enrollment for the eight major universities to 40%, which will significantly raise the demand for student accommodation. In this context, investing in student housing will showcase multiple advantages, including high returns, low risk, and stable income, making it an emerging investment opportunity worthy of attention. Such investments not only provide high-quality accommodation options for students to meet their needs but also offer stable and continuous returns for investors. Investors should actively seize this market opportunity and capitalise on the growth potential of the student housing market.

Successful Case of a Rapid Hotel Conversion: From Hotel Sav to Y83

In March 2022, Knight Frank sold Hotel Sav for HK$1.65 billion to AEW Capital Management and Crystal Investment, rebranding it as Y83. The property, converted into student accommodation, features nearly 600 beds and offers 20,000 sq ft of communal space. With an existing hotel license, the transformation required no planning application.

Y83 achieved an occupancy rate of 85% in its first year, reaching full occupancy in the second year. Monthly rents increased from HK$7,000 to HK$12,500 in 2023, rising further to HK$8,300 to HK$14,800 in 2024, reflecting a 14% to 18% increase.

Recommendations and conclusion:

In the 2024 Policy Address, the government outlined its plan to increase the supply of student accommodation by encouraging the private sector to convert hotels and other commercial buildings through self-financing and private initiatives to enhance the provision of student housing facilities. Based on this, we suggest the Buildings Department expedite applications for building plans and that new guidelines and regulations from the Fire Services Department be implemented for operators. These measures could facilitate a more rapid development of privately funded supply of student housing to address increasing needs. Additionally, the government should streamline and simplify the regulatory and approval processes for new student housing developments.

The trend of converting hotels into student residences not only addresses the urgent need for adequate housing but also offers substantial financial prospects for stakeholders.

The transformation of hotels into student accommodation not only creates value for investors but also contributes to the overall enhancement of the student’s living experience.

With government’s supportive measures to expedite the conversion of assets into student housing and increase the supply of accommodation facilities, it presents a tremendous opportunity for real estate investment. Looking ahead, it is crucial for investors to remain adaptive and proactive in their strategies, addressing current challenges while capitalising on emerging opportunities within this sector.      

Existing Student Housing Investment Opportunities