Where Hong Kong currently stands in travel, tourism market

HONG KONG — Dean Winter, managing director for Hong Kong-based Swire Hotels, has two types of hotels in Hong Kong. One is more business-oriented, and it’s showing a strong growth rate, approaching 2018 levels (the last normal year for Hong Kong) and even higher. The other type of hotel is more leisure-oriented. Its pace has slowed in March, especially when compared to a strong March 2023.

“That’s indicative that we’re not yet able to bring the long-haul, higher-rate-paying leisure traveler from the U.S. or Europe into Hong Kong for reasons around air capacity. Also, we’ve now become expensive,” Winter explained.

He said Hong Kong becoming expensive is actually good for the industry after decades of asset managers and owners/operators looking at occupancy as the success metric. “What’s happened in the last year has taught us that resources are short, and it’s better, under such conditions, to drive rate at the cost of occupancy,” Winter said.

While room rates are up, it does make the city more expensive. “It is good for the industry and good for owners, but perhaps not good for consumers, particularly when they have to pay a premium for an air ticket to get here as well. Hong Kong, at the moment, if you compare it to other destinations in Asia for the long-haul leisure market, it is not seen as a value option," Winter added.

Winter and other panelists took part in a panel on Hong Kong’s travel and tourism update as part of The BHN Group’s HICAP Update on March 13-14 at The Regent Hong Kong, which was the first time it brought the hotel investment conference back to Hong Kong since 2019.

The panelists included Winter, Tasos Kousloglou, CEO – Hotel Division for Sun Hung Kai Properties Ltd.; Sunny Paw, Group COO, Deputy CEO, and EVP Operations – China for Shangri-La Group; and Kenneth Wong, general manager, MICE & Cruise and Regional Director, Europe for the Hong Kong Tourism Board. Jeff Higley, president of The BHN Group, moderated the panel.

One word for Hong Kong   

At the beginning of the panel, Higley asked each panelist to summarize the current state of Hong Kong’s travel and tourism industry.

Kousloglou’s word was “dynamic.” “Since the full opening of Hong Kong in early 2023, I can see the travel and hotel market are constantly improving. There are highs and lows, but we are reaching a level where rates have surpassed 2018 and every month, I see improvement, but not evenly.”

Paw’s word was “recovery.” “If I look at Hong Kong today, we have 60% recovery compared to 2018, which is very dynamic considering we opened one year later than Singapore and Japan. So, we can see a lot of growth for Hong Kong, and we can feel the growth in ADR in our hotels in the past two months. We are very optimistic about the rest of the year.”

Winter’s word was “tepid.” “It’s not a cold market, but it’s not a hot market. I take comfort from the optimism of my colleagues. We are optimistic, and while we clearly see moments where there is tension in demand for rooms, it’s nothing like what we’ve been used to. So, we are looking ahead optimistically, but, as it stands today and probably for the rest of the year, it’s a bit tepid.

Wong’s word was “progressing.” “Generally speaking, Hong Kong is a city that’s been growing and evolving all the time. Even before the pandemic, we’ve been progressing. At the peak in 2018, we received 65 million visitors that year. During the pandemic, we kept ourselves agile… After the pandemic, we’ve recovered very well. In 2023, we arrived at an overall recovery rate of 52%. Looking forward, we will continue progressing regarding the new infrastructure in the pipeline, new attractions, a very strong partnership with industries, and our forecast for the later part of 2024, which is very aggressive.”

Market in motion

Wong said Hong Kong is a market in motion, with arrivals at the end of 2023 hitting 52% of recovery numbers and projected to hit 75% by the end of 2024.

In addition, he said that looking at the length of stay, per capita standing, satisfaction level, and the proportion between overnight and same-day visitors, Hong Kong’s 2023 numbers compared to 2018 and 2019 all show strong momentum.

There are numbers to improve on, but Wong is optimistic because of infrastructure changes for Hong Kong, air capacity, new attractions in the pipeline and the addition of the Greater Bay Area (GBA) development in south China, which he thinks will also be a “game-changer” for Hong Kong.

The one new wild card will be the perception of new national security legislation passed just this week that could align laws more closely with the Chinese mainland and deepen an ongoing crackdown on dissent.

Coming into effect on Saturday, the law introduces 39 new national security crimes, adding to an already powerful national security law that was directly imposed by Beijing on Hong Kong in 2020 after huge and sometimes violent pro-democracy protests the year before.

China and Hong Kong’s leaders say the new laws are needed to “plug loopholes” as part of their drive to “restore stability” following the huge 2019 protests. They argue their legislation is similar to other national security laws around the world.

Critics counter that what China’s Communist Party views as national security offenses are far broader and more sweeping with potential to impact business activity that would not be criminalized elsewhere.

Focusing on rate

Kousloglou said Hong Kong currently over-relies on mainland China visitors, but he thinks that is actually a strength of the market.

“Going back to hotels, what I see in our portfolio, but you can also see it in market statistics, is for mid-scale, upscale hotels, most of them run around 90% occupancy,” he said. “And rates have recovered close or a little bit above 2018.”

Kousloglou said occupancies still have room to grow, but luxury ADRs are also up compared to 2018 by 10%. “I would like to focus on the rate a little more because I think it’s very encouraging despite slightly lower occupancy and there’s ample room to grow.”

Paw said his company’s hotel growth in Hong Kong has been dynamic in 2024, with especially strong demand from mainland China for the Chinese New Year. But those demand numbers have softened in March.

“It’s a good thing we have this huge market supporting us, and we are very optimistic about this occurring,” he said. “For occupancy, the demand is there, but average spend is dropping, year-over-year, and I guess that’s attributed to the international traveler not coming as quickly as we hope.”