Hong Kong rebounding; private investors drive M&A

CBRE has reported in a new market update (download here) that Hong Kong’s hotel performance was outstanding during the Lunar New Year holiday in February 2024 and expects further operational growth in 2024, driven by a recovery in occupancy in well-managed assets. The Hong Kong Hotels Association reported an average room occupancy rate of 93.4% and average room rates of HK$1,715 during the New Year holiday, both of which are at/or above the levels measured for the same holiday period in 2019.

Overall per capita spending for overnight tourists into Hong Kong SAR has jumped to HK$8,212, with the hotels industry seeing HK$29.2 million of revenue in 2023, a level on par with 2019. The upturn in hotel performance has been driven by the return of global travelers, particularly mainland Chinese tourists, who account for over 79% of all inbound arrivals over the past 12 months.

Luxury and upscale segments are expected to see a greater improvement in operating performance in 2024, with these assets having experienced relatively slower price appreciation when compared to other tier I markets in the region.

Private investors will continue to drive acquisitions in 2024, with a value-add and opportunistic strategy as their primary focus. Investors continue to look for opportunities to convert existing assets into co-living and student accommodation, capitalizing on the overall shortage of assets in the living sector and the opportunities presented by the Top Talent Pass Scheme (TTPS). Co-living operators such as Dash and Weave are already partnering with institutional investors.

More broadly, the hotel investment market is still presenting challenges at this time, but borrowing costs are expected to begin to decline in mid-2024, which will promote investment activity. However, negative carry and uncertainty over when these rates will begin to move will limit chances of a strong uptick in investment volume, CBRE opined.

Other key trends noted by CBRE include the rate of Hotel Accommodation Tax to be increased effective January 2025, opportunities presented by Top Talent Pass Scheme, and new initiatives to attract tourists.