Office-to-PBSA conversions provide a value-add pathway for underutilised non-Grade A offices, potentially delivering higher IRR than hotel conversions
HONG KONG, 22 June 2026 — JLL’s latest report, Investing in Adaptation: PBSA as a Resilient Alternative Asset Class, highlights a shift in investment strategy within Hong Kong’s purpose-built student accommodation (PBSA) market. As demand for student beds continues to grow, investors are increasingly targeting suitable assets for conversion into student housing. Capital is flowing towards competitively priced Grade B and C office properties, where potential internal rates of return (IRRs) may reach up to 18%, higher than comparable hotel conversions.
JLL forecasts that Hong Kong’s student accommodation supply-demand gap will nearly double from 76,300 beds in 2025/26 to 147,200 beds by 2029/30, based on visible pipeline. This widening shortfall of more than 70,000 beds highlights a pronounced lag in supply, driven by a sharp rise in non-local student enrolment as the government sustains its push to position the city as a regional education hub.
As of end-April 2026, Hong Kong’s major PBSA projects provided around 6,900 leasable beds. Occupancy rates at major PBSA developments have remained high at 98% to 100%, with rents rising steadily by up to 10% per annum since 2022. New supply remains constrained. JLL estimates that around 16,300 PBSA beds were in the pipeline as of end-April 2026, including beds arising from the sale of assets intended for conversion into student accommodations, applications under the Hostels in the City Scheme, and potential government land sales in 2026/27. This remains insufficient to meet projected demand. As a result, Hong Kong’s PBSA market offers significant growth potential and is well positioned to evolve into a more established alternative asset class.
Oscar Chan, Head of Capital Markets at JLL in Hong Kong, said: “Early conversion activity was largely concentrated on hotels. However, as the hospitality sector recovers and asset prices rise, conversion margins have narrowed and suitable acquisition opportunities have become increasingly limited. In contrast, Grade B office vacancy rates have remained above 10% for over five consecutive years, while rents and capital values for Grade B and C office assets have declined by 15.2% and 50.5% respectively from their 2019 peaks, presenting a compelling entry point. Amid soft leasing demand, PBSA conversion is emerging as an increasingly viable strategy to repurpose underutilised non-Grade A offices, allowing landlords to unlock trapped capital and secure more stable income streams.”
The report notes that while converting Grade B and C office assets to PBSA is generally more complex and capital intensive than hotel conversions, the potential investment outcome is more compelling. JLL estimates that based on a total project cost of around HKD 8,000 to HKD 9,500 per sq ft, including acquisition pricing and conversion capex, and assuming stabilised monthly rents of around HKD 7,000 to HKD 10,000 per bed, office-to-PBSA projects could achieve target IRRs of 15% to 18% over a five-year holding period, exceeding the 13% to 16% typically associated with comparable hotel conversions.
In addition to attractive pricing and return potential, supportive policy measures have been a key catalyst driving the shift in capital allocation. The government introduced the Hostels in the City Scheme in July 2025, streamlining approval procedures and lowering regulatory thresholds for office-to-hostel conversions. As of 4 February 2026, the authorities received 25 applications involving around 5,100 beds, with wholesale conversion being the majority. This indicated that investors have accelerated deployment in response to evolving policy support.
As the market matures, PBSA investment strategies are shifting from the acquisition of smaller, one-off assets towards the assembly of scalable multi-asset platforms. Cathie Chung, Senior Director of Research at JLL, said: “Amid heightened macro uncertainty, investors are prioritising resilient, necessity-driven income streams. Supported by predictable demand and academic cycles, PBSA is increasingly viewed as a counter-cyclical stabiliser within diversified portfolios. Demand is rising for accommodation clusters with 300 to 800 beds, which offer greater operational efficiency and support platform-level expansion. Such assets may also attract long-income or core-plus institutional buyers, including insurers, pension funds and sovereign capital, providing early-stage investors with a clearer and more structured exit strategy.”
However, office-to-PBSA conversion is not universally applicable. The assets with the strongest conversion potential typically include: (1) Grade B and C office properties facing structural vacancy, with discounted pricing, motivated sellers and weak alternative uses; (2) student-catchment fringe offices, supported by predictable occupancy drivers and counter-cyclical income streams; (3) assets with fully-owned or consolidated ownership structures, enabling smoother acquisition, faster planning and execution of a full-building repositioning strategy; and (4) properties within the “capex sweet spot”, sufficiently aged to benefit from pricing discounts, yet not requiring extensive façade replacement or major upgrades to mechanical, electrical and plumbing (MEP) systems, allowing for stronger IRR and more predictable cost outcomes.
Ryan Wong, Head of Project and Development Services at JLL in Hong Kong, said: “The cost of converting office buildings into student accommodation can vary significantly, depending on key technical factors such as floorplate configuration, façade and window systems, and MEP systems. Under optimal conditions, where the façade, structure and MEP systems are suitable for student accommodation, interior fit-out costs can range from HKD1,300 to HKD1,400 per sq ft. However, where façade refurbishment or MEP upgrades or replacements are required, capex can increase materially. Early-stage technical assessments are therefore critical for investors to determine where assets are likely to fall within the capex spectrum.”
