Hotels gear up for recovery

However, Colliers finds the potential re-introduction of regular travel between Hong Kong and the mainland brings recovery hopes as pre-outbreak figures showed mainland cross-border travel accounted for 80% of inbound tourism.Rosanna Tang, Colliers Head of Research for Hong Kong and Southern China, said tourist arrivals were down 81% year-on-year for the first quarter of 2020, taking overall Hong Kong hotel occupancy rates to 32% in March. “However, we take positivity in the lessons learned from SARS [Severe Acute Respiratory Syndrome] in 2003, when occupancy rates bounced back quickly to 88% in the first three months with support from government initiatives after borders were opened, creating optimism for the sector,” Ms Tang said.

Discussing current investment opportunities, Shaman Chellaram, Senior Director of Capital Markets, suggested: “Hoteliers thinking longer-term could use the current market climate to expand their footprint, or even look to enter a traditionally competitive market. Opportunities could materialise as a result of other stakeholders with limited appetite looking to exit the sector.”Currently, the investment sector is experiencing slow market momentum and a weaker number of overall investment transactions. Mr Chellaram said a wait-and-see attitude emerged in the first quarter of 2020 with limited hotel activity but “we are seeing a surge in enquiries as investors start to look for hotel opportunities to deploy capital”.

Pureanae Jang, Senior Manager of Colliers Valuation and Advisory Services, agrees. “Now is a good time for owners and investors to revisit strategies.”The current hotel regime, with low occupancy levels, may interrupt operations and cash flow but hoteliers in older properties, who have a long-term vision, may take advantage of this cycle to renovate and upgrade assets from a value-add perspective, Colliers points out.

The report cites as an example the InterContinental Hotel in Tsim Sha Tsui (main picture), which stopped operations in April to undergo its biggest renovation in 30 years. The hotel will be rebranded as Regent Hong Kong when it reopens in 2022.Prince Hotel, another property in Tsim Sha Tsui – the tourist hub at the south end of the Kowloon Peninsula – has also closed for a major renovation. The hotel will reopen in the third quarter of next year as Marco Polo Prince Hotel, reflecting contemporary elements enhancing this well-known regional brand. The company said the abnormal market outlook had caused management to rethink the benefits of a full closure to achieve overall downtime and cost benefits.Dalip Singh, General Manager of Marco Polo Hotels – Hong Kong, describes Prince Hotel’s renovation programme as “a positive statement and underlines the long-term future of tourism to this city”.

“We look forward to rebuilding and strengthening Hong Kong’s reputation long into the future with the new Marco Polo Prince Hotel,” Mr Singh said.For independent hotel owners and operators, Colliers believes now could be a good opportunity to reposition assets, especially if they own aging stock. “Investment in alternative uses could be considered. Traditionally this would mean office space, but we are seeing growing interest in co-living or serviced apartments. We have recently witnessed transactions in the market and are receiving an increased number of requests to support valuations and feasibility for related projects,”  Ms Jang said.This could also be a good time for portfolio building, Colliers believes, noting: “Whilst hoteliers are in unchartered waters and it looks unlikely that tourism in Hong Kong will fully recover in the near-term, there is a window of opportunity for investors to bargain-hunt for discounted hotel assets for long-term holding or conversion.”Hong Kong’s increasing integration into the Guangdong-Hong Kong-Macao Greater Bay Area also brings opportunities. “We believe the long-term prospects of tourism in the Hong Kong remain positive, on the back of bigger picture demand including MICE [meetings, incentives, conference and exhibition] tourism, the Greater Bay Area initiatives and the new infrastructure, like the high-speed rail and Hong Kong-Zhuhai-Macao Bridge, that continues to enable expansion of intercity travels,” Ms Tang said.