With almost no new builds in the pipeline, the market is projected to have less than 300 keys added annually facing virtually stagnating supply.
In addition, hotels are being converted to student housing, which shall bode well for marketwide hotel performance in the medium term.
The city is also facing another shortage in student housing. With the non-local student numbers surging in recent years, there is currently a shortage of an estimated 76,300 beds for the student housing market.
To quickly close the supply gap in the market, government has introduced the policy 'Hostels in the City' Scheme in mid-2025, which encourages investors and developers to convert commercial buildings and underutilized hotels into student housing with certain incentives such as retaining the original GFA.
As of October 2026, the government has received 52 applications with 45 applications confirmed eligible, four projects completed, and five are undergoing renovations. Reflecting these opportunities, every major, recent hotel deal in Hong Kong has been a conversion to student housing - apart from the Sheraton & Four Points Tung Chung.
In the medium term, student demand is expected to remain strong and growing as the Hong Kong government continues to promote Hong Kong as an education hub.
The hotel market will be facing a supply squeeze — as more properties are expected to be converted into student housing, especially in the core areas like Tsim Sha Tsui, along with the slowing hotel supply in the pipeline. Watch out for and demand compression once tourist numbers pick up and more rooms exit the market.
AP Hospitality Advisors serves owners, investors, developers, operators and lenders of hospitality assets across Asia-Pacific.
