HONG KONG • Hong Kong's distinction as a shopper's paradise used to draw tens of thousands of tourists to the China-ruled city every month, but a year of political unrest and the ongoing coronavirus crisis are driving some hotels to the brink of financial ruin.
Hotel occupancy rates in the recession-hit economy have plunged since protesters took to the streets last June, angry with Beijing's perceived tightening grip over the city. The sometimes violent clashes with police scared away tourists, especially high-spending Chinese and business visitors.
The coronavirus outbreak was the final straw for Hong Kong's battered hotel industry as room revenues took a hit from travel curbs and flight cancellations.
"Nine-and-a-half hotels out of 10 are losing money because there're no more tourists and they need to solely rely on domestic demand," said property consultancy CBRE executive director Reeves Yan.
The industry posted an overall occupancy rate of 29 per cent in February, against 91 per cent a year earlier, the Hong Kong Tourism Board said, as visitors to the financial hub plunged 98 per cent for the month.
Now, with much of the border with mainland China closed and travel curbs to contain the spread of coronavirus extended, some hotels are shutting their doors for good or taking time out to renovate.
Three-and four-star hotels, many run by domestic investors including Casa Deluxe Hotel and Butterfly on Morrison, have closed down in the past three months.
The InterContinental Hotel overlooking Hong Kong harbour closed last week for a two-year facelift that will see it lay off around 500 people.
Many five-star hotels had single-digit occupancy rates in February and March, but they have more cash reserves to keep them going, industry participants said.
Boutique and budget hotels, however, need to reinvent themselves to survive, including by offering long-term stays, renovating or even converting into offices.
The volume of commercial property transactions fell to new lows in the first quarter, real estate data showed. While there were no hotel transactions, realtor Cushman & Wakefield expects that to change from the second quarter.
"Sellers are now willing to lower prices by another 10 per cent following an already 10 per cent cut after the social incident (protests), and buyers are coming back to the market to look for bargains on emerging signs that the epidemic is cooling," said Cushman & Wakefield executive director Tom Ko.
CBRE says there are around a dozen hotel assets for sale, not unusually high. But talks could drag on, other realtors say, as buyers are asking for prices to be halved while sellers are not distressed enough to dump assets at a loss.
"Banks rarely recall hotel assets, because they are very hard to sell," Knight Frank executive director Thomas Lam said.
Potential buyers for hotel assets are mostly local private equity firms, developers and operators of co-living space.
Co-living space operators will turn the properties into homes for shared living, where residents have their own rooms but share common areas such as the kitchen. The 37-room Paris Hotel has given up its lease, which was taken up by co-living space operator LINKo Living at HK$230,000 (S$42,000) per month.
Co-living space investments typically offer yields of around 4 per cent to 5 per cent, more than other mainstream real estate investments, CBRE said.
A major player, Warburg Pincus-backed Weave which has two premises in Hong Kong and two more opening this year, said it is sticking by its expansion target to have 3,000 beds in the next five to seven years, up from 700 now, and is looking at assets including boutique and budget hotels.
Weave's occupancy rate in the first quarter was 85 per cent, down from 95 per cent in January and at the end of last year. Currently 50 per cent of its residents are expatriates.
Weave founder and CEO Sachin Doshi said: "When the market is not good, we benefit from people who want flexibility... who've become a bit more price conscious."
Unlike traditional residential leases that require at least a one-year commitment, co-living places offer shorter-term stays.
Oootopia, owned by Hong Kong-based Arch Capital and with three premises in the city all converted from three-star hotels, is not ruling out buying if it sees a bargain. "You would want to observe more and see whether prices will get more attractive. This is not the moment for fast expansion," it said.