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New hotel trends emerge as operators adapt to survive

“Adapt, adjust, accommodate,” a phrase traditionally associated with Eastern Yogic philosophy, has become an important mantra for the hotel industry over the past year. Operators have been forced to adapt quickly to survive, adjust the nature of service, and stay in line with their ultimate service of accommodating guests.

The Covid-19 pandemic brings continued challenges for the industry. While countries with strong domestic markets such as the US, China and Australia have seen some rebound, Hong Kong has been hit especially hard as the sector depends on cross-border and international travel.

Occupancy rates have been whittled down to 30 per cent (less in some cases) in 2020 from the 2018 highs of more than 90 per cent. They stood at just over 50 per cent in the first quarter, according to figures published by the Hong Kong Tourism Board, varying greatly between properties and locations.

The government’s “Designated Quarantine Hotel Scheme” provides some respite and operational cash flow for participating hotels. However, this only accounts for 10.3 per cent (or 8,958 rooms across 33 hotels) of the marketwide supply of 86,915 rooms across 312 hotels.

With the holiday season upon us, the supply under the scheme is insufficient to cater to the inbound “quarantine” demand from travellers returning to Hong Kong. With hotels largely fully booked until September, additional hotels are needed to overcome the expected supply deficit.

With quarantine requirements of up to three weeks proving challenging for guests, certain hotel operators have looked to introduce initiatives which focus on the physical and mental well-being of their guests. In-room fitness solutions, virtual happy hours, and themed in-room dining concepts are among ideas implemented so far.

As we look to the wider market of non-quarantine hotels, curating staycations, “work-cations” and day-use experiences have been key to boosting occupancy, especially over the holiday periods. However, occupancy rates have varied greatly between properties, with factors such as hygiene, trust, service offering, facilities and pricing being key to any decision.

This has accelerated the adoption of technology, seen in the prevalence of contactless check-in, improved air quality systems, digital concierge and in-room technology. The leveraging of online travel agencies and social-media platforms to drive business and guest awareness has also been key to capturing demand and building trust.

With short-stay demand still limited, some hotels have pivoted to the extended-stay market. This has provided alternative accommodation solutions at competitive rates for tenants and would-be flat-hunters.

Food and drink is a key component of full-service hotels. As a direct response to the pandemic, some hotels have opened up their restaurants to home delivery “experiences” and services – something which would typically not have been considered in pre-Covid-19 era.

From an asset management perspective, the drop in demand has given some hotel owners a natural window to revamp concepts, bring forward planned renovations or explore the possibility of repositioning certain properties.

Examples in Hong Kong include Salisterra at The Upper House, the lobby upgrade at Butterfly on Prat, renovation of the guestrooms, lobby and bar at the Four Seasons, and the repositioning or rebranding of The Sheung Wan by Ovolo and The Aberdeen by Dash Living.

Despite the uncertainty, and with some hotel projects on hold or delayed, we have seen new openings globally including the Ace Hotel Kyoto, Niccolo in Suzhou, The Hari Hong Kong, Sheraton Hong Kong Tung Chung, Page 8 London and the imminent opening of Aman New York. The implication is that there is a clear expectation the market will recover.

From a hotel transaction perspective, deals across APAC were significantly down. They fell to US$1.6 billion in the first quarter from a year earlier, according to RCA analytics, with Japan, China and Thailand being the most active markets.

Even so, Iris Capital’s A$180 million (US$138.7 million) purchase of a portfolio of 17 Ibis hotels in Australia at the end of 2020 and Blackstone’s acquisition in March of an eight-hotel portfolio in Japan from Kintetsu Group have given the wider market a boost.

An uptick in activity in the second half of 2021 is expected with some significant assets and portfolios coming to market.

Significant capital has been raised by private equity funds and certain private families to target distressed, well-priced or “rarely-traded” opportunities in the hotel sector. Still, the anticipated distress has not yet materialised, reflecting the holding power of owners across the region.

Technology will continue to play an increasingly important role in asset acquisitions, with some buyers using a combination of virtual site visits and strong local partnerships to conduct due diligence.

As Hong Kong looks to open-up and revive its economy, the city stands to be an integral part of the Greater Bay Area with access to a population in excess of 70 million. The profile of guests coming into Hong Kong may change. Business and leisure guests will look for more tangible experiences and gravitate to hotels they trust.

For investors and operators, the market will continue to provide short-term uncertainty and perhaps significant longer-term opportunity. The adversity faced in the past 12 months has bred change. The ability to adapt, adjust and accommodate remains key.

To See What Could Be and identify opportunities requires market experts who can lead our industry into the future. To discover more about the latest trends in Hong Kong’s hotel sector, contact Shaman Chellaram today.


This article was published in South China Morning Post on 15 June 2021.


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Shaman Chellaram

Senior Director

Valuation & Advisory Services

香港

作為不斷發展變化的資本市場部的高級董事,我專責處理投資物業項目的出售及收購事宜,物業類型包括全幢商廈、酒店、發展用地、工業物業及分層寫字樓。他與酒店投資者、業主、家族辦公室、發展商、基金及私人投資者建立並維持緊密的合作關係。透過與市場專屬及區域團隊通力合作,我的服務領域涵蓋香港以及主要國際市場投資物業,使我能夠為客戶在香港以及海外的投資機會提供服務

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