Driving non-Grade A office market with the Hostels in the City Scheme

The Scheme offers a timely response to market conditions and helps absorb the oversupply of office space.

With the relaxation of quotas for non-local students in both publicly funded and self-financed institutions, demand for student housing has surged.

To address the growing shortage of student housing and consolidate Hong Kong’s status as an international post-secondary education hub, the Development Bureau and the Education Bureau of the Hong Kong government jointly launched the Hostels in the City Scheme on 21 July 2025 to streamline the planning application process and relax rules for converting hotels and other commercial buildings into post-secondary education student hostels.

The move comes as the city faces increasing demand for student accommodation, driven by relaxed quotas for non-local students in both publicly funded and self-financed institutions.

Meanwhile, this initiative allows commercial buildings and hotels to be converted into student dormitories without the need for going through the traditional planning approval process.

More about the scheme
The scheme aims to streamline the conversion process by removing bureaucratic hurdles related to planning, land use, and building regulations.

Key flexibilities include expanding the definition of “hotel” use under the current commercial-related zoning to allow conversions without planning applications to the Town Planning Board or even rezoning. In addition, most of such conversion cases do not require land lease modifications and premium payments for most commercial properties, and relaxing rules on plot ratios and gross floor area calculations.

Additionally, surplus spaces such as parking lots can be repurposed into amenities like laundry rooms and gyms that facilitate the daily needs of student tenants.

Despite these relaxed regulations, the government maintains that all converted dormitories must meet essential residential standards, including adequate natural lighting and ventilation. For example, rooms must have sufficient windows, and no part of a room should be more than nine meters from a window.

This is to ensure a safe and proper living environment for the student tenants.

High vacancies in the current office market
This initiative also comes at a time when Hong Kong’s office market is facing record-high vacancy rates.

According to the Hong Kong Property Review, the private office vacancy rate reached 16.3%, with Grade B and C offices experiencing 15.6% and 11.0% vacancy rates, respectively, at the end of 2024. With 3.33 million sq. ft. of new office space expected in 2025, double that of the previous year. The Scheme offers a timely response to market conditions, helps absorb the oversupply of office space, and addresses the student housing shortage challenges.

The Scheme is particularly attractive to owners of non-core Grade B and C office buildings, especially to those located near to the education institutions and public transportation hub, such as Hung Hom and Western districts of Hong Kong Island where being the popular districts for students seeking to stay in a convenient location with sophisticated transportation network, and they can travel to school with shorter commute time.

Currently, students can only look for the residential flats in these districts and may need to afford a premium rent due to the popularity of the area.  

Moreover, the floor plate of the Grade B and C office buildings is relatively smaller in size, with an open plan layout. This will facilitate the requirement of adequate natural lighting and be more efficient in subdividing the floor plate into more living rooms.

Conversely, Grade A office buildings may not be beneficial as, in general, the buildings have a larger floor plate (over 10,000 sq ft) that the core part of the building may not meet natural light requirements, etc. and be unable to be converted to hostel rooms. This will lower the floor efficiency of the building, and the Grade A landlords may prefer to keep the buildings for office use.

To those Grade B and C office buildings with higher vacancy and needs to upgrade the comment facilitates to meet up with the new workplace trend, this will offer the owners a new opportunity to refine their real estate strategy, convert, and revitalise their properties at a lower capital cost and more environmentally friendly way, whilst contributing to a pressing social need.

This also supports and facilitates Hong Kong to be the post-secondary education hub in Asia.