Skip to main content Skip to footer

Brighter yet challenging future for Hong Kong's hotel sector

ECE Campaign 20221110 Expert Talks Website 1536x1040

Hong Kong SAR’s hotel sector has had to grapple with particular challenges in 2022. At the same time, investors and operators alike have grasped the opportunities that have presented themselves

The welcome news that inbound travellers no longer have to undergo compulsory hotel quarantine has given the hotel industry’s morale a much-needed boost. However, it will take time for this transition to translate to meaningful business. It also means that residents are likely to leave the city during the upcoming holiday season. This confronts hotel operators with two questions: What can they do to attract international visitors? How can they do so quickly?

“The Government announced new future measures to enable specific registered inbound tour group travellers to visit a wider range of attractions...”

On 26 September 2022, the Government replaced the compulsory hotel quarantine requirement with a new ‘0+3’ policy. This means visitors must instead undergo three days of medical surveillance during which, according to issued guidelines, “inbound persons are free to go out but are obliged to comply with the city’s ‘Amber Code’ restrictions under the Vaccine Pass, followed by a four-day self-monitoring period”. In a bid to find a balance between the COVID-19 risks and ‘economic development’, on 7 November 2022 the Government announced new future measures to enable specific registered inbound tour group travellers to visit a wider range of attractions and dining outlets during the ‘Amber Code’ period.

Officials have also widened the Return2HK and Come2HK schemes from the mainland and Macao, with no quota application required under each scheme. This is another positive step for the hotel sector as it looks to alleviate its operating difficulties by participating in the city’s re-opening.

“However, until the border with the mainland fully reopens, the sector will continue to face challenges,” says Shaman Chellaram, Senior Director, Valuation & Advisory Services. “Pre-COVID-19, mainland inbound overnight visitors accounted for over 70% of the hotel rooms in Hong Kong. In the short term, Hong Kong’s hoteliers will have to rely on and compete for international arrivals for business.”

Against this backdrop, it is important to understand how the sector has fared this year.

Signs of life in H1 2022

The fifth COVID-19 wave earlier this year set Hong Kong’s recovery back, resulting in an extremely challenging operating environment for the hotel sector. Certain hotels signed up to the HKSAR Government’s Community Isolation Facility Hotel Scheme (CIF), a temporary solution to accommodate the rising COVID-19 cases. Other hotels stayed in the Designated Quarantine Hotel Scheme (DQH). While these measures boosted much-needed cash flow for hotels, they still lost significant revenue during the first quarter because flight and route cancellations led to room cancellations. Non-quarantine hotels, especially at the luxury end of the market, suffered the most because the restrictions all but eliminated staycation demand and local Food & Beverage (F&B)/banqueting revenue.

  • Restrictions eased during the second quarter and while rates dipped slightly, hotel occupancy improved. In fact, according to Hong Kong Tourism Board figures, the first half of 2022 outperformed the first half of 2021 on an average basis.
  • H1 2022 average occupancy was up at 63.5% compared with 56% in H1 2021
  • Average room rates in H1 2022 were at HKD 1,038 versus HK$ 836 in H1 2021
  • Revenue Per Available Room (RevPAR) in H1 2022 stood at HK$ 659 versus HKD 468 over the same period last year
  • As we entered the second half of the year, Q3 2022 data shows occupancy levels at 75%, 72% and 67% for July, August and September respectively, with supply at 320 hotels comprising 89,315 keys.

“While the hotel sector’s average performance figures depict an improving situation compared to H1 2021, they do not tell the full story,” says Thomas Chak, Co-head of Capital Markets & Investment Services. “Operators have experienced mixed fortunes. Many have faced extreme difficulties, while a select few hotel groups, with a combination of quarantine and non-quarantine hotels across their portfolios, have performed relatively well.”

In the first quarter, luxury (High Tariff A) operators went through a torrid time, with occupancies in the 10%-40% range. The situation improved over the first half, with average occupancy at 49% and average rates of HKD 1,643 (up 14.1% over H1 2021).

Mid-scale (Medium Tariff) and upscale hotels (High Tariff B) performed better in the first half, with occupancies at 64% and 72% respectively and their average rates up 29.2% and 47.6% over H1 2021. Some guests checking-in to isolate away from other household members perhaps boosted figures from the early part of the year.

However, with most operators under pressure, the question is where has this left the hotel investment market?

Actionable insights

“Hong Kong’s challenging operating environment served as a catalyst for opportunistic hotel acquisitions”

Five hotel transactions were completed in Hong Kong in the first half of 2022 for a total deal value of approximately HK$6.197 billion (c. US$ 790 million), reflecting over 11% of all hotel transactions across Asia-Pacific in the same period this year. The investors mainly acquired the hotels — three and four-star mid-scale assets — to reposition them as co-living, extended-stay and student accommodation.

Interest in the market has focused on under-performing assets, which have attracted investors for a number of reasons: pricing, the ability to service longer-stay guests with a flexible accommodation product, lower operating expenses and more stable returns. Such hotels also enable operators to pivot back to welcoming short-term guests as the market re-opens.

Working with strong operating partners remains key to unearthing any potential value-add. “Private equity real estate funds including AEW, PGIM, Hines and Angelo Gordon, and operators such as Weave Living, Crystal Investment and Dash Living, have been the most active over the last 6 to 12 months,” says Shaman Chellaram.

Other investors and operators such as local hotel group, Magnificent Hotels Investment Limited, have also taken advantage of this demand and pricing dislocation to cycle out of and into certain assets.

Major Hotel Transactions H1 2022

Grand City Hotel
Sai Yin Pun
Bay Bridge Retreat & Spa Travelodge
Rosedale Hotel
Hotel Sav
Hung Hom
No. of Keys 214 435 148 435 388
GFA (sq. ft.)
60,150 216,314 51,076 110,869 122,108
(HKD million)
900 1,421 850 1,375 1,651
Price per key
(HKD million)
4.205 3.267 5.743 3.161 4.255
No. of Keys 14,963 6,569 16,641 12,402 13,520

Source: Colliers Research

The five transactions in the table above involved a total of 1,620 hotel rooms, reflecting an average price per key of HK$3.825 million and an average price per square foot of HK$11,055. Excluding the acquisition of the Bay Bridge Lifestyle Retreat and Spa (as this transaction took place at a significant discount to valuation), the average price per key was HK$4.03 million and the average price per sq. ft. HK$13,875 for these mid-scale hotels.

While pricing is one of the attractions for investors and operators to the market, it is not the sole determining factor. Location, access to transport and layout are critical to operational efficiency and success. In addition, asset values, appeal to investors and end-users hinge on holistic ESG strategies.

Wider economic and geopolitical factors weigh on investment decision making

As we look to the rest of 2022 and 2023, continued inflation and rising interest rates are likely to mean that banks will further tighten their lending criteria, especially for hotels in Hong Kong. We may also further cap rate expansion.

“The ‘principal repayment holiday’ scheme, which has allowed borrowers in Hong Kong to apply for a principal moratorium of up to three years because of the impact of the pandemic, is scheduled to finish early next year,” says Chak. “This may stretch the resources of some asset owners and so provide the perfect platform for seasoned hoteliers and/or opportunistic funds to step into the market. Some are already eyeing up of transactions for the rest of this year.”

As hotels start to perform better, hotel brands will look to enter the market. The abrupt cancellation of the Designated Quarantine Hotel (DQH) scheme may cause some negative impact initially, not least revenue shortfalls, as operators revert to normal operations.

While competition will be fierce as hoteliers look to attract inbound visitors, the relaxation of banqueting restrictions is expected to further drive non-room revenue. However, “The 3-day ‘Amber Code’ restricts visitors from, for example, dining out and going to bars. This will continue to frustrate the wider hospitality community and places continued pressure on F&B operators,” says Chellaram. Pressure for the lifting of all restrictions will persist. At the same time, new hotels are opening, the most recent being The Fullerton Ocean Park Hotel, which began a soft launch phase not long ago.

Staff shortages and limited airline capacity could dampen the hotel sector’s participation in Hong Kong’s revival

While some operators have managed their staffing levels well, others are finding it challenging to entice workers back to the sector. This emphasises the importance of staff wellness and retention as a major component for hotel owners’ and operators’ environmental, social and governance (ESG) strategy.

The latest removal of quarantine restrictions points Hong Kong in the right direction. Recent events such as the Global Financial Leaders’ Investment Summit and the Hong Kong Rugby Sevens signify the city is on its way back. However, the ability for airlines to ramp up capacity is a key part of the puzzle. Most importantly, the border with the Mainland needs to open fully to make a meaningful difference and the city has to react faster to maintain international competitiveness – not least to help Hong Kong re-focus on being Asia’s World City – and retain and attract talent.

While challenges lie ahead, recent changes suggest the hotel sector can look to a brighter future, especially as part of the wider Greater Bay Area. Economic uncertainty and volatility will produce opportunities for both hotel operators and investors.

Related Experts

Thomas Chak

Co-Head Capital Markets & Investment Services

Capital Markets & Investment Services

Hong Kong

Being an award-winning industry specialist, Thomas is highly regarded amongst his peers and clients with over 18 years’ property investment experience. The key client focus of Capital Markets remains institutional clients, local investors and developers, family offices and private high net worth individuals as well as PRC inbound capital. 


Thomas develops and fosters partnership and consultancy based approaches to clients, resulting in improved profitability through high client retention rates and improved business profile. 


Thomas has joined Colliers as Executive Director of Capital Markets in July 2019. In a way, this is a homecoming for Thomas as he was with Colliers’ Capital Markets team between 2006 and 2008.  Prior to joining back Colliers, he was with Knight Frank as Senior Director of Capital Markets, where he completed transactions of over HK$8 billion.   

View expert

Shaman Chellaram

Senior Director | Asia

Valuation & Advisory Services

Hong Kong

As Senior Director Valuation & Advisory Services Asia at Colliers, I leverage my 18-years of strategic and investment advisory experience to work closely with my clients to maximize the potential of their hotel and commercial real estate assets in Hong Kong and across key regional and international markets.  This includes acquitistion and disposal advisory,  asset repositioning,  market entry, portfolio diversification, operator selection, hotel and mixed-used development, hotel tokenisation, ESG, transaction advisory and M&A.   

Advising from both an operational and investment perspective,  my clients include hotel and resort investors, hotel operators, serviced apartment groups, co-living groups, developers, PERE funds, REITs, family offices,  private investment groups and UHNWIs. 

By understanding my clients' needs, I draw on our Colliers global platform and capaibilities to provide solutions and accelerate our clients' success, whether in Hong Kong or overseas.   

View expert