Hong Kong’s small landlords turn to co-working, student hostels to survive

Hong Kong’s struggling office landlords are ramping up efforts to convert their assets into co-working spaces and student accommodation in a bid to adapt to intense competition and the flight to quality, according to analysts. With some 3.5 million sq ft of new premium office space expected to be completed this year and next, on top of the 4.5 million sq ft added in 2024 and 2025, tenants are increasingly choosing to relocate to new and modern offices, leading to diverging fortunes for big established landlords and non-premium asset owners. “The persistent ‘flight to quality’ creates a profound and escalating challenge for owners of older, non-prime office buildings,” said Jack Tong, director for research and consultancy at Savills Hong Kong. “As corporates from high-value sectors consolidate into modern, ESG [environmental, social and governance]-compliant buildings, the demand for secondary space contracts to smaller local businesses, back-office functions and start-ups – all of which are highly price sensitive and have more options.” This situation is forcing landlords to offer significant rent concessions to keep tenants. “For [many] landlords, asset obsolescence is no longer a distant risk but an immediate threat to cash flow and asset viability,” Tong said. Given the situation, proactive landlords are exploring strategies such as repositioning their assets and converting underutilised office floors into co-working spaces and student accommodation. “We have seen a recent rebound in co-working space requirements, with total co-working leased floor space amounting to 1.7 million sq ft in 2025, 50 per cent higher than in 2017 when the market was consolidating,” Tong said. Landlords were becoming more active in the segment, setting up their co-working operations in their own premises to provide a full leasing ecosystem, according to Tong. For example, in 2024, CK Asset Holdings, one of Hong Kong’s largest landlords and developers, launched CK Office Suites to manage a co-working office space on the 45th floor of Cheung Kong Center in Central. The conversion to student housing was also gathering pace because of a huge supply-and-demand imbalance in the sector, according to Savills, which estimated an 88,000-student-bed deficit in Hong Kong currently. “The latest Hostel in the City Scheme reveals 25 applications were received under the scheme, involving an addition of 5,100 beds, of which 23 were commercial conversions and two new builds,” Tong said. Recently, the owners of Rich China Center, a grade B building in Kwun Tong, applied to the Town Planning Board to convert the asset into a student hostel, providing 117 rooms with a total of 225 beds. The South China Morning Post has reached out to the owners of Rich China Center for comment. Meanwhile, the city’s office property market was showing signs of stability, with net absorption of 2.1 million sq ft in 2025, the most since 2018, according to CBRE. Net absorption refers to the total amount of space taken up minus the space left vacant by tenants. Central recorded the biggest improvement with a net absorption of 234,800 sq ft in the fourth quarter, the highest for the city’s main business hub since the second quarter of 2015. Net absorption for the full year stood at 496,000 sq ft, the best annual gain since 2007, CBRE said. Despite the pickup in leasing, overall office rents in the city fell 2.9 per cent year on year, the least since 2019, the property consultancy added. Demand mainly came from financial companies, accounting for 69 per cent and 62 per cent of total take-up in the last two quarters of 2025, according to Knight Frank. As a result, premium offices in Central are expected to outperform the broader market this year, with rents likely to rise by as much as 8 per cent, while rents on Hong Kong Island could fall by as much as 5 per cent, Knight Frank added. Besides repurposing, small landlords can also survive the tough leasing environment by “enhancing competitiveness through selective and cost-effective upgrades rather than full-scale redevelopment”, said Keith Chan, economist for research and consultancy for Greater China at Knight Frank. “Improvements to lobbies, lift systems, building services and ESG-related features can materially uplift tenant perception,” he said. “Such repositioning may help capture niche demand from occupiers such as family offices, boutique financial firms and professional services, whose preferences are shifting towards higher-quality, well-managed and more efficient office environments.”