Hong Kong’s hotel valuations drop, vacancy rates soar, as business travellers and tourists avoid city amid street protests

Lam Ka-sing

Investments in new hotels grounded to a halt in Hong Kong, as valuations fell 10 per cent amid record vacancy rates caused by business travellers and tourists who are avoiding the city’s anti-government protests.

The average room rate at three-star hotels fell 46 per cent to HK$446 (US$57) for the week that ended on October 27, from US$105 a year earlier, according to data by accommodation platform WebBeds. Tourists and duty-free shoppers from mainland China led the exodus, with their number of room nights falling 24 per cent during the week, compared with the same time last year.

Dozens of meetings, fairs, exhibitions, conferences and sports events had been cancelled since June 9, when an estimated 1 million people marched on the streets to oppose a controversial extradition bill, kicking off what has become six months of unceasing anti-government protests, culminating in the worst political crisis for the local authorities in the city’s history.

“It's definitely been a tough time for Hong Kong in the last four months,” said Robin Rossmann, managing director at data and analytics specialist STR, at the Hotel Investment Conference Asia-Pacific, adding that the declines in revenue per available room, or RevPar, have accelerated to about 50 per cent in the last two months, from 10 per cent at the start of Hong Kong’s social unrest. “There is definitely no doubt that what has happened has had an impact. Perceptions really are all [that matter]. ”

Anti-government protesters vandalise a MTR exit in Mong Kok on 20 October 2019. Photo: Sam Tsang

It’s a woeful time to be in the hotel business, especially for those that operate premises near the flash points of clashes between anti-riot police and anti-government protesters. Over the past few weeks, radical protesters have taken to arson and vandalism, destroying shops, bank branches and restaurants linked to mainland Chinese owners or investors.

“Exhibitions and trade fairs are aimed at global travellers,” and they are usually locked in many years in advance, said Jeong. “Travellers or fair participants like regularity [and events to be on schedule.] Once we lose the regular timing or schedule to a temporary issue, it will be hard to restore.”

Even five-star hotels like the InterContinental Hong Kong, located in the prime tourist hub of Tsim Sha Tsui, with harbourfront view across the Victoria Harbour at one of the world’s most famous skylines, had not been spared the effects of the protest.

“The social unrest has put a big dent into the tourism industry, affecting retail, street-side food and beverage in particular, and the hotel industry,” said Goodwin Gaw, chairman and co-founder of the US$23 billion Gaw Capital Partners, which owns the InterContinental Hong Kong. “Our hotel occupancy had been affected, just like everyone else in the sector,” because “leisure tourists who have the discretion in where they choose to go will understandably avoid Hong Kong until the disruptions recede,” he said.

That has driven down the valuations of three-star hotels, older hotels, or lesser brands by 10 per cent, said Colliers International’s head of valuation and advisory services Hannah Jeong.

Investors in hotels are “looking for downward adjustments in prices of between 10 and 20 per cent” even though owners are “still holding up because they think the market can recover within two years,” she said, “So they are not really rushed.”

Falling valuations are attractive for some investors, like the operator of co-living space, which are looking for three-star or four-star hotels to buy, said Savills’ managing director and head of investment and sales Peter Yuen.

Recovery will take time, said Rossmann, adding that any rebound in visitor numbers cannot take place before the unrest settles and “would take at least a year, and probably longer than that.”

Some hotel operators have seized the opportunity to exit the market altogether for better returns elsewhere. The Excelsior, the storied four-star hotel on the harbourfront of Causeway Bay on Hong Kong Island, closed on March 31 – before Hong Kong’s political unrest began – to undergo a rebuild for conversion into an office tower. The Kimberley Hotel was sold in mid-September at a 30 per cent discount for HK$4.3 billion to China Cinda Asset Management, the agency that processes bad debts for state-owned China Construction Bank.

“A hotel is not a favourable investment at this moment, not until you see tourists return to Hong Kong because the occupancy rates of Hong Kong’s hotels, be it five-star or two-star ones, are so low,” said JLL’s chairman Joseph Tsang, whose firm noted that regional economies such as Singapore have benefited from Hong Kong’s pullback in demand. “[Buyers] may convert the hotel to commercial or co-living use.”

Instead of Hong Kong, some investors have looked overseas, for example Japan, for opportunities.

“We see an increasing number of new faces like new investors that are competing with us,” said Shunsuke Yamamoto, managing partner at Fortress Investment Group (Japan), at the hotel investment conference, or HICAP. “[It] really helps reactivate some of the sleepy market and create the new flow of people in money in those regions.”

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