HONG KONG (Reuters) – Hong Kong’s distinction as a shopper’s paradise attracted tens of thousands of tourists to the Chinese-led city every month, but a year of political unrest and the coronavirus crisis are driving some hotels to the brink of financial ruin.
Hotel occupancy rates in the recession-stricken economy have plummeted since protesters took to the streets last June, angry at the perceived tightening of Beijing’s grip on the city. The sometimes violent clashes with the police have scared tourists away, especially Chinese spendthrift and business travelers put off by political tensions.
The coronavirus outbreak has been the last straw for Hong Kong’s hospitality industry, as room revenues have been hit by travel restrictions and flight cancellations
“Nine and a half out of 10 hotels are losing money now because there are no more tourists and they only have to rely on domestic demand, so they are just hanging on,” said the manager. executive of CBRE, real estate consultant. Yan.
The industry posted an overall occupancy rate of 29% in February, up from 91% a year earlier, the Hong Kong Tourism Board said, as visitors to the financial center plunged 98% for the month.
Now, with much of the border with mainland China closed and travel restrictions extended to contain the spread of the coronavirus, some hotels are closing their doors for good or taking time to renovate.
Three and four-star hotels, many of which are managed by domestic investors, including Casa Deluxe Hotel, Butterfly on Morrison and two branches of Empire Hotels, have closed in the past three months.
The InterContinental hotel overlooking Hong Kong Harbor closed its doors last week to undergo a two-year facelift that will see it lay off around 500 people. Many 5-star international hotels recorded single-digit occupancy rates in February and March, but they have more cash reserves to maintain them than smaller hotels, industry participants said.
Boutique and budget hotels, however, need to reinvent themselves to survive, including offering long stays, renovating or even turning into offices, real estate consultants have said.
INCREASING ASSET SALES
The volume of commercial real estate transactions fell to new lows in the first quarter, according to real estate data. While there have been no hotel transactions, realtor Cushman & Wakefield expects this to change from the second quarter.
“Sellers are now poised to cut prices an additional 10% after already falling 10% after the social incident (protests), and buyers are returning to the market looking for bargains on emerging signs that the epidemic cools, ”said Cushman & Wakefield executive director Tom Ko.
CBRE says there are around a dozen hotel assets for sale, which isn’t exceptionally high.
But negotiations could drag on, other realtors have said, as buyers demand that prices be cut in half while sellers are not struggling enough to get rid of assets at a loss.
“Banks rarely recall hotel assets because it’s very difficult to sell,” Knight Frank executive director Thomas Lam said.
The potential buyers of hotel assets are mainly local private equity firms, developers and coliving operators.
Cohabitation operators will turn properties into shared living homes, where residents will have their own bedroom but share common areas such as living room and kitchen. The 37-room Paris hotel near a busy shopping area in Kowloon has waived its lease, which was taken over by cohabitation operator LINKo Living in April at HK $ 230,000 per month.
Cohabitation investments typically offer returns of around 4% to 5%, more than other traditional real estate investments, said Yan of CBRE.
A major player, Weave, backed by Warburg Pincus, which has two premises in Hong Kong and two more opening this year, said it was sticking to its expansion target of having 3,000 beds in the five to next seven years, down from 700 now, and he’s looking at assets, including boutique hotels and budget hotels.
Weave’s occupancy rate in the first quarter was 85%, down slightly from 95% in January and the end of last year. Currently, 50% of its residents are expatriates.
“When the market isn’t good, we benefit from people who want flexibility, people who have become a little more price conscious,” said Sachin Doshi, Founder and CEO of Weave.
Unlike traditional residential leases which require a commitment of at least one year, coliving offers the flexibility of short stays.
Oootopia, owned by Hong Kong-based Arch Capital and with three locals in the city, all converted from 3-star hotels, said he wouldn’t rule out buying if he saw a good deal, though. be careful.
“You would like to observe more and know if the prices will become more attractive. Now is not the time for rapid expansion.
Yan from CBRE said many owners hold the power and hope things will improve after two to three months.
“Would they sell at a loss? We haven’t seen that yet … I see many owners and operators are still positive about the outlook for Hong Kong.
Editing by Anne Marie Roantree and Jacqueline Wong