Hong Kong hotels on the edge of the cliff due to protests and pandemic pain

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HONG KONG (Reuters) – Hong Kong’s distinction as a shopper’s paradise used to draw tens of thousands of tourists to the Chinese-ruled city each month, but a year of political unrest and the coronavirus crisis are driving some hotels to the brink of financial ruin.

FILE PHOTO: A general view of a tourist attraction in Tsim Sha Tsui, following the outbreak of the novel coronavirus disease (COVID-19), in Hong Kong, China April 2, 2020. REUTERS/Tyrone Siu/ File Photo

Hotel occupancy rates in the recession-hit economy have plummeted since protesters took to the streets last June, angered by Beijing’s perceived tightening grip on the city. The sometimes violent clashes with the police have scared away tourists, especially Chinese spendthrifts and business visitors put off by political tensions.

The coronavirus outbreak has been the final straw for Hong Kong’s struggling hospitality industry as room revenue has 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 have to rely solely on domestic demand, so they’re just hanging on,” Reeves said, executive director of the real estate consulting firm CBRE. Yan.

The industry posted an overall occupancy rate of 29% in February from 91% a year earlier, the Hong Kong Tourism Board said, as visitors to the financial hub fell 98% for the month .

Now, with much of the border closed with mainland China and travel restrictions to contain the spread of the coronavirus extended, some hotels are permanently closing or taking the time to renovate.

Three- and four-star hotels, many run 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 the Hong Kong harbor closed its doors last week to undergo a two-year facelift that will see it lay off around 500 people. Many international 5-star hotels recorded single-digit occupancy rates in February and March, but they have more cash reserves to run them than smaller hotels, industry participants said.

Boutique and budget hotels, however, need to reinvent themselves to survive, including offering long-term stays, renovating or even converting into offices, real estate consultants have said.

UP ASSET SALES

The volume of commercial real estate transactions fell to new lows in the first quarter, according to real estate data. Although there have been no hotel transactions, real estate agent Cushman & Wakefield expects that to change from the second quarter.

“Sellers are now ready to cut prices by another 10% after an already 10% reduction after the social incident (protests), and buyers are returning to the market to seek bargains on emerging signs that the epidemic is cooling,” said Tom Ko, executive director of Cushman & Wakefield.

CBRE says there are about a dozen hotel assets for sale, which isn’t unusually high.

But negotiations could drag on, other estate agents said, as buyers demand prices be halved while sellers aren’t distressed enough to get rid of assets at a loss.

“Banks rarely call back hotel assets because they are very difficult to sell,” Knight Frank chief executive Thomas Lam said.

Potential buyers of hotel assets are primarily local private equity firms, developers and co-living operators.

Cohousing operators will turn properties into shared living homes, where residents have their own bedrooms but share common areas such as the living room and kitchen. The 37-room Paris hotel near a bustling shopping district in Kowloon gave up its lease, which was taken over by co-living 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, CBRE’s Yan said.

Major player Weave, backed by Warburg Pincus, which has two premises in Hong Kong and two more opened this year, said it was sticking to its expansion target of having 3,000 beds in the five to next seven years, up from 700 now, and it looks in assets like boutique hotels and budget hotels.

Weave’s first quarter occupancy was 85%, down slightly from 95% in January and at the end of last year. Currently 50% of its residents are expatriates.

“When the market isn’t good, we benefit from people who are looking for flexibility, people who have become a little more price-conscious,” said Sachin Doshi, Founder and CEO of Weave.

Unlike traditional residential leases that require a commitment of at least one year, cohabitation offers the flexibility of shorter stays.

Oootopia, owned by Hong Kong-based Arch Capital and having three premises in the city, all converted from 3-star hotels, said it would not rule out buying if it saw good case, even if he would be cautious.

“You would like to observe more and whether prices will become more attractive. Now is not the time for rapid expansion.

CBRE’s Yan 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 that many owners and operators are still positive about the prospects for Hong Kong.

Editing by Anne Marie Roantree and Jacqueline Wong


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