(Bloomberg) -- Hong Kong’s flailing commercial property market is getting a lift from the education sector as the number of Chinese students surges in the city.
Colleges are snapping up offices to turn them into classrooms, while investors are piling millions into dormitories to capture the growing demand from mainland Chinese. The sector is emerging as a bright spot in Hong Kong’s commercial real estate market, which has seen both leasing and sales plummet amid weak sentiment.
The education sector has become “a massive industry,” Joseph Tsang, chairman of Jones Lang LaSalle Inc. in Hong Kong, said at a media briefing last week. “Everything from school places, dormitories to educational facilities is in serious under-supply.”
Hong Kong’s education industry accounted for 12% of the new office leasing by floor area in the current quarter, making it the third- largest type of tenants after the finance and professional services industries, data from Cushman & Wakefield Plc show. The Hong Kong University of Science and Technology rented 22,600 square feet (2,100 square meters) in an office tower in the Kwun Tong area, while the University of Hong Kong leased 16,600 square feet in nearby Kowloon Bay.
The schools intend to use the space for education, said Rosanna Tang, head of research at Cushman. The government’s push to develop Hong Kong’s education industry by increasing the number of overseas students will support the market, she said. “Education will be a policy focus in the future, so we expect to see universities continue expanding in the office market in the short run,” Tang said.
Hong Kong’s government has been trying to make the city “an international post-secondary education hub” by doubling the cap for non-local students in state-funded higher-education institutions to 40%. As a result, Hong Kong continues to see a growing number of students from outside the city, with most coming from mainland China.
Students from the mainland accounted for more than 77% of non-local rolls at publicly funded universities in the last academic year, government data show. That’s up from 73% in the 2016-17 academic year.
The emerging demand is providing some relief to an office sector that continues to struggle with oversupply. An additional 5.1 million square feet of floor area will come to the market from next year through 2029, according to Cushman & Wakefield. The firm expects office rents to drop as much as 9% in 2025.
Schools’ demand for space has also helped commercial real estate sales. One of the city’s biggest office transactions this year was made by an education provider in November. Hong Kong Metropolitan University offered about HK$2.6 billion ($335 million) for Cheung Kei Center, a distressed office tower, outbidding the likes of state-owned China Mobile Hong Kong. The university also bought a hotel earlier this year for student accommodation.
The influx of overseas enrolments has provided investment opportunities in student housing, a once-niche sector in Hong Kong’s property market. Now private equity firms, family offices and other investors have put millions into dorms to capitalize on the accommodation shortfall. There will be a shortage of 120,000 student beds by 2028, according to an estimate by Colliers International Group Inc.
That is supporting the lackluster commercial property investment market in the city. Hotels and rental housing-related transactions made up 14% of such deals in 2024, up from 5% last year, due to demand for student accommodation, data from Cushman show.
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