Hong Kong universities drive market shift: strategic acquisitions for student housing

Current market dynamics reveal a shift towards end-users; investors increasingly focus on acquiring real estate that meets their operational requirements. 

Traditionally, investment objectives primarily motivated transactions and heavily focused on capital growth and yield. Investors typically sought properties that promised substantial financial returns. Caution prevailed among investors regarding commercial property investments due to high interest rates and economic uncertainty.  

Market observations 

Recent market trends illustrate a growing inclination among end-users to acquire properties en bloc, such as hotels and office spaces. Earlier this month, Hong Kong Financial Secretary Paul Chan Mo-po urged universities to make better use of their funds, with media revealing that their financial reserves had risen to roughly $140b, 11% up from 2022-23.  

Notable transactions include the Airport Authority Hong Kong's acquisition of Winland 800 Hotel, 1 Tsing Yi Road, for self-use in February; City University of Hong Kong’s purchase of Inter-Continental Plaza, 94 Granville Road, for self-use in December 2024; and Hong Kong Metropolitan University’s acquisition of One Harbourgate Chueng Kei Centre East Tower, 18 Hung Luen Road, for self-use in November 2024.

Further, this evolving trend has been encouraged by various government initiatives aimed at bolstering tourism and the education sector. 

Government Initiatives 
The Hong Kong government has launched several initiatives to enhance the local business landscape locally and internationally. 

Key initiatives include implementing tourism measures such as the Night Vibes and Hello Hong Kong campaigns aimed at attracting tourists and boosting the economy. To further support the tourism sector, $1.09b has been allocated in the 2024-25 Budget, with monthly fireworks displays and drone performances planned to enhance visitor experiences. 

Additionally, Hong Kong is focusing on developing an international hub for post-secondary education by leveraging its strong educational infrastructure and increasing enrolment of non-local students. This includes establishing the “Study in Hong Kong” brand through international conferences and scholarships, particularly targeting students from ASEAN and Belt and Road countries. 

To address growing accommodation needs, a pilot scheme will be introduced in the second half of 2025 to streamline the conversion of commercial properties into student hostels. 

Furthermore, more than 80 hectares of land in the Northern Metropolis will be developed into a university town, promoting collaboration between local and international institutions while providing additional student housing.

This trend of strategic property acquisitions underscores the initiatives of various organisations to expand their facilities and enhance operational capabilities. With substantial financial resources, many businesses are well-positioned to capitalise on opportunities within a market facing downward pressure, often resulting in distress sales.  

Well-capitalised entities are leveraging their financial strength to identify and secure prime assets that align with their strategic objectives.

This environment allows organisations to acquire assets that may have previously been deemed unattainable, further solidifying their role in the real estate sector. 

From a valuation standpoint 

This shift in focus necessitates a reevaluation of conventional real estate valuation metrics. While traditional measures such as rate of return remain important, a property’s suitability, applicability, and potential have become equally significant. It is essential to assess how well a property aligns with the operational requirements of potential investors and its adaptability to future needs. 

For example, when seeking student accommodation, educational entities prefer assets close to their institutions and transport links rather than rental returns and potential asset value increase. Educational institutes have the funds to spend without having to factor in expensive loans and the speed of the city’s economic recovery. They can afford to take the long view. 

In addition, investors see the potential of providing private accommodation to post-graduate students using similar parameters. 
Distressed sales have significantly affected Hong Kong, allowing buyers to attain quality assets in prime locations at more affordable prices. Despite the revival in tourism, many hotels are not seeing guests returning to pre-COVID-19 numbers. 

Operational requirements are taking precedence over traditional considerations such as return on investment, highlighting the growing importance of aligning property acquisitions with the end user’s specific functional needs and strategic goals. 

This broadened perspective on valuation reflects a deeper understanding of the market, recognising that the long-term viability of an asset is increasingly tied to its functional relevance. 

As such, there will be an inevitable trend towards incorporating these considerations into real estate evaluations. 

Conclusion 

The growing emphasis on end-users within Hong Kong’s real estate market signifies a broader transformation. As various organisations emerge as pivotal end-users, the landscape of property valuation is evolving to encompass a wider array of considerations beyond traditional investment metrics. 

As the market continues to navigate downward trends, the strategic property acquisitions by these entities highlight a promising shift that could redefine the future of real estate in Hong Kong. 

We expect to see more similar transactions as businesses seek properties that meet their specific operational needs. This trend will likely foster greater stakeholder collaboration and lead to a more dynamic real estate ecosystem.