Hong Kong’s student housing sector is entering a new phase as larger institutional-style deals emerge from the city’s distressed commercial property market, signalling that professional investors are cautiously returning after years of falling asset values.

Investors and analysts said the market was moving beyond the smaller hotel conversions that dominated the past two years, with more sizeable transactions expected as financing conditions improve, distressed sales accelerate, and buyers hunt for assets capable of generating stable income.

“This year and next year, there will be more sizeable transactions,” said Kavis Ip, CEO of Centaline Investment.

The clearest example came last month when Centaline acquired the Regal Oriental Hotel in Kowloon City for HK$1.52 billion (US$194 million), in what is set to become Hong Kong’s largest private student housing estate with about 1,500 beds.

Unlike earlier student housing projects typically backed by smaller private investors, the Regal deal was structured with an equity partner and sized for eventual exit to institutional buyers such as insurers, sovereign wealth funds and private equity firms.

“We always wanted to do deals of this size,” Ip said. “Large institutional-grade assets create a completely different buyer pool when you eventually exit.”