For Chu Kap-ning, it is a case of water, water everywhere, but not a drop to drink. Mr Chu wants to capitalize on Hong Kong's fecund educational resources and "export" these overseas to attract foreign students to study here. The major stumbling block, however, is the lack of space. But according to Mr Chu, this could be more than amply addressed by refurbishing unused industrial blocks that have stood empty since manufacturing industries relocated en masse to the Mainland.

Mr Chu's frustration is shared by others in the business community who fault parochial government policy for the mismatch in demand and supply. While government continues to hew to the line that demand still exists for industrial real estate, the reality is that the market for traditional factories and warehouses has continued to slump along with a shrinking pool of end-users. The upshot of this is that as valuations of under-utilized buildings falls, so does investor and developer interest.

According to government statistics, the stock of industrial land in 2000 occupied 504 hectares, with the urban areas accounting for 60 percent of this, or 307 hectares. To its credit, the Planning Department has adopted a dual-pronged approach to deal with surplus land. This has been through rezoning industrial land for other uses and relaxing the criteria in the use of industrial buildings to include other business activities.

As a result of the former, 192 hectares of industrial land have been converted for business use and 48 hectares have been reclassified for residential and comprehensive development purposes, among others. In sum, 48 percent of the 504 hectares have been re-designated for other uses.

The broadening of permitted economic activities in industrial buildings beyond that of an industrial nature has meant that ventures such as catering, information technology and telecommunications, entertainment, exhibition and education can, as a matter of right or following approval by the Town Planning Board, operate in these buildings. Ostensibly, the flexibility in alternative land use already exists for those wishing to convert their buildings for other uses than industrial.

Edmond Yew, Executive Director, Lai Sun Group, said the relaxation in criteria for other uses, especially the change in the Town Planning Zoning from industrial use to other specified uses under Business Zone, is a welcome change. Now, offices, shops, restaurants, etc, under "Column 1," can be opened without planning application. Businesses under "Column 2," such as hotels and wholesale centers can also be opened but first need planning approval.

"However, it takes approximately eight months to go through the Section 16 Planning Application for Column 2 uses and the Lease Modification process," he said.

So if industrial building owners can inject new life into their properties, why has this not sparked a rush to capitalize on the changes?

One of the problems is that Hong Kong continues to be mired in the economic doldrums. A sluggish business environment means that rentals have remained soft for properties in peripheral areas as well as central business districts. Data collected by Knight Frank for the month of July indicates that rents for Grade A offices in core Central has fallen by more than 41 percent year-on-year. The situation is exacerbated by a supply glut as more new office projects are expected to come onto the market over the coming months, such as Phase 2 of International Finance Center, Cyberport and Three Pacific Place.

According to Mr Chu, the residential rental market could get a boost if more overseas students were allowed to study here, while schools in turn could expand into renovated industrial buildings to accommodate more students.

"Our dead property market could boom if our redundant industrial buildings could be modified into schools and campuses," he said. "The empty residential buildings held by the Housing Authority or private developers could be leased to foreign students."

Mr Yew says the state of the economy affects his company's plans to redevelop old sites and the possibility of niche opportunities. For example, with more and more tourists and travelers come to Hong Kong, demand for mid-price range accommodation is rising. Redeveloping carefully chosen industrial sites into tourist hotels would help solve the projected shortage of rooms, create employment and generate money for building owners.

What changes there have been towards finding new uses for Hong Kong's empty industrial buildings, however, have been a case of too much, too little, too late. Take the introduction of standard waiver fees for example. Launched by the Lands Department earlier this year, the new initiative is intended to expedite the application process, which is typically a drawn out affair due to the inordinate length of time required for negotiations between owners and the government, making it easier for the former to change the use of otherwise idle industrial buildings.

Under the new mechanism, standard rates are applied according to permitted uses for two categories. These can range from office operations to telecommunications and production studios under the first category, and from art studios to travel agencies and investment brokerages under the second category. Fees can be paid annually or made as a one-off payment. Analysts have, however, criticized the government for setting levies at levels that are higher than what the market is willing to bear.

In addition, the narrowing of rental differentials between office and industrial premises means that property owners are unlikely to find it economically viable to convert from industrial to commercial uses particularly for those with property in areas where there is a surfeit of office space. According to a recent report, landlords in areas such as Kwun Tong, Cheung Sha Wan, Shatin and Yuen Long are in a better position to take advantage of the standardized rates than their counterparts in Kowloon Bay, Tsuen Wan and Tuen Mun because of the higher potential for gains in conversion.

While it is intended that the introduction of standardized fees enhance otherwise onerous land use application procedures, this represents only one facet of a complex administrative process that mandates gaining approvals from other government departments and agencies as well. Therefore, although owners might have been given the all-clear by the Lands Department on alternative use, they are still required to deal with the Town Planning Board, the Fire Services Department, the Environmental Protection Department and the Buildings Department, among others. Mr Yew suggests a joint governmental committee be set up to centralize the application process to help get applications through in less than a month and save companies and government time and money.

To be sure, the government has worked hard to find ways of putting to better use surplus industrial real estate. One of these involves studying the viability of emulating the experience of New York and London to redevelop industrial premises into lofts or home-offices.

"Lofts are a new market product when compare with the traditional office buildings and residential buildings," says Mr Yew. "But if the idea takes off in Hong Kong, it will provide more incentive for landlords to redevelop and upgrade their existing industrial buildings."

Although this is a novel idea, there are such practical issues as interface, environment, traffic and infrastructure, building structure, and fire safety requirements that need to be taken into account, in addition to cost considerations such as premiums for lease modification and those associated with design and construction.

The release last month by Wharf Holdings of Metro Loft in Kwai Chung is set to test the market waters for integrated home-offices in an industrial setting. The 23-storied property houses 255 units ranging in size from 705 square feet to entire floors of more than 14,000 square feet. Pricing the units at a target price of between HK$1,200 and HK$1,500 per square foot, the developer is pitching the project at the creative industry that includes companies engaged in such activities as advertising, entertainment, and software development, among others.