Panelists offer their take on Hong Kong’s slow rebound and
how interest rates are impacting the transaction market.
HONG KONG - Looking to assess what the
outlook for the APAC region might be over the next 12 months, leaders from the
region took to the stage for the “Investment Insights” panel at HICAP Update in
Hong Kong earlier this week.
Moderated by Nihat Ercan, CEO, Asia
Pacific, Hotels & Hospitality Group, JLL, the panel was composed of Kenny
Gaw, managing principal and co-founder, Gaw Capital Partners; Girish
Jhunjhnuwala, founder and executive chairman, Hind Group of Companies; and Hoe Kit Mak, managing director
(Private Equity Lodging), CapitaLand.
Ercan first solicited Jhunjhnuwala’s
opinion around market recovery and what it portends.
Operating hotels in Australia, Bali
and Hong Kong, the CEO said HInd’s Q1 this year has probably been the best
quarter they’ve seen in the past five, six years. He cited concerts (Taylor
Swift, Coldplay) and sporting events (Formula 1 Gran Prix, the Australian Open)
driving strong business in Australia. In contrast, he termed business in Hong Kong
as “lackluster,” mainly due, he felt, to a lack of international events.
Last year, we had about 35 million visitors altogether. Of that, 65% were from Mainland China, out of which 70% of that number did not stay overnight.
Girish Jhunjhnuwala
Jhunjhnuwala added while the focus
remains on attracting Mainland China visitors to Hong Kong, the bulk of those
visiting are not doing overnights. “Last year, we had about 35 million visitors
altogether. Of that, 65% were from Mainland China, out of which 70% of that
number did not stay overnight. They’re daytrippers,” he said.
Hind’s three hotels in Hong Kong are
doing “all right” occupancy wise at 65% to 70%, but Jhunjhnuwala was less
enthusiastic about rate growth. “You raise the rates, occupancy comes down. It’s
as simple as that. So, Hong Kong remains a bit of a concern. But I’m confident
in Hong Kong [in the] long run.”
Although he didn’t predict when, Gaw
felt Mainland China business would recover to pre-pandemic levels. “I believe
we’ll get there. It’s taking longer than people expected,” he said.
Still, he noted during the pandemic
domestic travel became strong. “People in China have discovered many of their
own destinations and investors and operators also have taken advantage of all
the people being cooped up in China and traveling within China, introducing new
products and new destinations. That momentum is still there. I think that’s one
of the reasons we’re seeing the recovery of outbound travel not as fast as
people expect.”
Gaw added the economy also has slowed
down, coupled with a so-called consumption downgrade. “People are kind of going
for cheap thrills. Traveling somewhere with the main purpose of enjoying some
kind of novelty new meal and taking an Instagram picture. [That’s] the kind of
consumption you’re seeing. Generally, you’re seeing slower growth, especially
in outbound travel, which costs more money.
“But, I must say that even from what I
see across my whole portfolio, whether it’s Japan, Thailand, New Zealand or
southern Europe, we’ve been seeing more Chinese everywhere… even Hong Kong. It’s
slower than we expect but every month we’re seeing bigger and bigger numbers
from China. So, it is improving. When it would get back to pre-COVID numbers –
would it be this year, would it be next year – I don’t know,” Gaw said. “I
think we’ll get there. The trend is there.”
With a diversified real estate portfolio
that includes serviced residences, co-living properties and hotels, Hoe Kit
noted CapitaLand from an investment perspective remains “very selective” in the
markets it chooses. “By and large, in many of these locations that we select we
look for multiple demand drivers,” he said. “Essentially, the products that we
generally like [are] serviced-apartments and co-living,” which, he said bring
the ability to pivot between short-stays and longer stays depending on market
dynamics.
“Co-living has become a ‘cool’ sector
to be in,” especially in Hong Kong, observed Jhunjhnuwala, whose company
recently transacted a hotel asset there that morphed to the model.
Interest rate conundrum
The panelists said interest rates
remain a conundrum for investors, given the uncertainty of any movement on that
front.
To me, the most interesting would be leisure products rather than business hotels, especially those that are within driving distance of large cities.
Kenny Gaw
“I would say my view is a consensus
view in that interest rates have peaked,” Gaw said. “I actually don’t think the
interest rate will come down as quickly as people think. I tend to think the
interest will only come down quickly if there is some kind of a crises… Despite
that, it’s still going to be positive for sentiments because as long as there
is a down cycle then people will be more aggressive in pricing and more willing
to take some negative-carry trades, and that would be good for transactions for
sure.”
From his perspective, Jhunjhnuwala
tagged Hong Kong as a buyer’s market, while resort-laden locales like Indonesia
and Thailand favor sellers. “Australia is neutral,” he added.
Hoe Kit noted when it comes to the bid-ask
spread, there’s more than just price involved when assessing investment
opportunities. “For many of our funds I see things very differently. We do a
lot of value-add work. Buying cheap is important, but what is cheap?” He
stressed every aspect of a potential transaction needs to be weighed, adding “the
interest rate plays a lot into what we do.”
Gaw noted his company has not been
very active in the China hotel market due to the variety of restrictions and/or
conditions that often accompany hotel projects, put in place by the government,
the developer or owner. “Many of the opportunities I’ve seen in China really
didn’t really make sense… But given that it’s a distressed situation,
especially as a lot of developers are buying distress and many of them have
been holding hotels on their books. Then, maybe in this cycle something will
come out which will become interesting from a pricing point of view. To me, the
most interesting would be more leisure products rather than business hotels,
especially those that are within driving distance of large cities,” Gaw said.
Other APAC markets
seen as conducive by the panel for investment plays included Australia, Bali,
Japan, the Maldives, Phuket and Thailand.