Unprecedented times to explore hotel opportunities as market sees potential in near-term investment

  • Hong Kong’s hotel sector has been challenged in the last 12 months with COVID-19 compounding the effects of city-wide social unrest
  • Hoteliers and investors with a long-term vision should take this opportunity to revisit strategies, and establish or expand their footprint in the city
  • Conversions from hotels into other uses provide viable options for owners and investors

HONG KONG, 14 MAY 2020 - The introduction of international travel restrictions and the closing of the border with Mainland China has had a major impact on tourism in Hong Kong. This has forced hoteliers and investors to consider whether to buy, sell or hold according to the latest report, unprecedented times to explore hotel opportunities from Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services and investment management firm.

The hotel sector is heavily dependent on tourism and business travel to generate revenue. While efforts have been made to create a ‘staycation’ market, 12-months of disruption has seen COVID-19 compound the negative impact of social unrest. The potential re-introduction of regular travel between Hong Kong and Mainland China provides optimism for recovery as pre-COVID-19 figures demonstrated cross-border travel contributed to 80% of the city’s inbound tourism.

Rosanna Tang, Colliers Head of Research for Hong Kong and Southern China, commented: “Tourist arrivals were down -81% YOY for Q1 2020 which has impacted the overall Hong Kong hotel occupancy rates, which dropped to 32% in March 2020. Taking positivity in the lessons learned from SARS in 2003, 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.”

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 of transactions. “While a wait-and-see attitude emerged in the first quarter of 2020 with limited hotel activity, we are seeing a surge in enquiries as investors start to look for hotel opportunities to deploy capital,” said Chellaram.

Pureanae Jang, Senior Manager of Colliers Valuation and Advisory Services said: “Now is a good time for owners and investors to revisit strategies. As the market goes through a downcycle, the uncertainty will impact investor’s returns and future vison. Although Hong Kong will recover, the unknown of how long this will take will play a major factor in the decision-making process.”

For independent hotel owners and operators, 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 receiving an increased number of requests to support valuations and feasibility for related projects,” Jang added.

To learn more about our insights on Hong Kong’s hotel sector, click here to download the full report.

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As Senior Director within the dynamic Capital Markets and Investment Services team in Hong Kong, I am responsible for the acquisition and disposal of en-bloc commercial buildings, hotels, development sites and industrial properties as well as strata-title offices. My expertise is in working with hotel investment groups, owner-operators, family offices, developers, funds and private investment groups.  In collaboration with the market-specific and regional teams, my remit covers investment properties in Hong Kong as well as key international markets, enabling me to service our clients' requirements for opportunities in Hong Kong and overseas.

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