Hotels make further room rate cuts to survive

Some have resorted to offering rates cheaper than the city’s subdivided flats.

L’hotel Nina et Convention Centre still holds the top spot in Hong Kong Business’ largest hotels survey with 1,608 rooms. Following suit and retaining second place is the Regal Airport Hotel with 1,171 rooms. Completing the top five are Regal Riverside Hotel, Harbour Plaza Resort City, and the Panda Hotel, each with 1,147 rooms, 1,102 rooms and 911 rooms respectively.

Overall, Hong Kong’s 52 largest hotels have 35,044 rooms in 2019, slightly up compared to 34,647 rooms in 2018. Despite facing a rough year with the civil unrest and the delayed effects of the US-China trade tension, Hong Kong’s hoteliers were not given a break in the first part of 2020, with the onslaught of the novel coronavirus.

Colliers’ head of valuation and advisory services Hannah Jeong stated that even during this period, hotels were still supported by various F&B, MICS and weekends services. “However unfortunately, today’s novel coronavirus hinders both domestic and overseas travellers. As per the market news, many hotel restaurants will close down for the next two months or even temporarily,” Jeong commented.

Budget hotels are currently providing temporary guaranty services for government as a quick solution to run cashflow. The region’s hospitality sector can expect a continuous decline and reduction in hotel occupancy, which is reflected in the significant drop in hotel prices by about 30% from their peak, according to a report published by Colliers.

They claim that the spread of COVID-19 is a case of history repeating itself, referring to the SARS outbreak in 2003. “Right after SARS (2003), the Hong Kong hotel industry recovered a year later as the government initiated a same-day-return visa for mainland  visitors, which stimulated more than double of Mainland Chinese visitors.

Unfortunately in 2020, there are not many immediate remedy options available,” Jeong added. Colliers further predicts that price and rental growth will likely remain negative in 2020, with office rents and prices falling arduously over H1 2020.

Stark solutions
Somewhere between the extensive demonstrations and the COVID-19 pandemic, the hotel industry began capturing the domestic market.

Since the number of leisure travelers dwindled at the onslaught of the political unrest, the sector decided to shift towards reining in the local population. “Hotels were offering long-term stay to capture the domestic market as well as providing different staycation packages for Hong Kong residents as many weekends were not allowed us to walk around the city. Long-term stay offers an alternative residential solutions to residents in Hong Kong under the uncertain market situation,” Jeong said.

Long-term occupancy focused on alternative rental solutions to locals facing an uncertain market situation.

In the latter part of 2019, Hong Kong’s hotel operators urged the government to waive rents and permit properties to extend empty rooms on longterm leases or for sale to survive the precipitous nosedive in occupancy and rates due to the civil unrest. Some hotels have become cheaper than the city’s subdivided flats with an extremely low price of $71 per night.

This rate was being offered by Winland 800 Hotel, which is located in Tsing Yi, an area that faced some of the most intense heat of the political protests. These numbers are said to signify a staggering decline of 65.7% from the country’s lowest rate of $207 a night in March 2018. Meanwhile, monthly rent at a three-star, 800-room hotel with coastal views amounted to $5,980 for 30 nights. This includes breakfast as well as WiFi connection and was found to be cheaper than plenty of subdivided flats in the country.

Since Hong Kong’s nosedive is expected to continue at least over H1 2020, Colliers recommends a shift on occupier sectors. “For occupiers, we expect a challenging business situation to persist, although opportunities to sign new leases at attractive rents should arise,” a spokesperson from Colliers said. “We think that landlords may need to be flexible in providing leasing incentives and discounts in order to attract tenants.”

Should COVID-19 peak within H1, hoteliers may look forward to the investment sentiment in H2 since it may undergo a sharp recovery, making the moment ripe for investigating distressed investment assets.