The ongoing protests have adversely affected hotel performance in in Hong Kong, and it’s difficult to project when a recovery might take place.
REPORT FROM ASIA—Hong Kong has seen declines in visitor numbers and hotel performance in the months since political protests against extradition began there, according to sources.
According to the Hong Kong Tourism Board, visitor arrivals in July decreased 4.8% year over year to 5.2 million, mostly due to a 5.5% decline in visitors from China, while total overnight arrivals for the same period fell 5.3% to 2.38 million.
Preliminary HKTB figures show a drop of approximately 30% in visitor numbers for the first half of August, and its travel trade partners already are reporting that forward bookings for September and October have “dropped significantly.”
Clement Kwok, CEO and managing director of Hong Kong and Shanghai Hotels, which owns the 300-room Peninsula Hong Kong, said in an email interview that “as a business that generates the majority of its earnings in Hong Kong, we are very concerned about the impact of the current situation.”
Kwok said his company does not release forecast numbers, but admitted there is an immediate financial impact due to the protests. According to the firm’s first-half 2019 earnings report, the Peninsula Hong Kong remained Hong Kong’s leader in terms of ADR, although the hotel’s ADR decreased year over year by 1% and RevPAR fell by 11%. Revenue at the property also dropped by 7% to HK$617 million ($78.7 million).
“We are fortunate to also have a portfolio of non-tourism related assets and businesses in Hong Kong, (but) these, too, will be affected if the protests are prolonged and the general economy deteriorates,” Kwok said.
Protests five years apart
Hong Kong residents have engaged in large-scale protests in the past, most recently in 2014. But the effects of 2019’s protests differ from those in 2014 due to the huge increase of mainland Chinese visitors during those five years.
Jesper Palmqvist, area director of the Asia/Pacific region at STR, the parent company of Hotel News Now, said Hong Kong is an established business hub for international inbound travelers, but what is even more significant is the injection of large investment, consumption and travel from mainland China.
“Hong Kong has been able to grow due to this, and come back from both SARS (Severe Acute Respiratory Syndrome) in 2003 and the last protests in 2014, even if it does take a few years to come back,” he said. “If you index performance by the month in 2014 before the protests, the market did not really get back to that level, but was on the path to get there, by H1 2019, before the current protests started.”
According to data from STR, Hong Kong saw 19 consecutive months of RevPAR decline following the 2014 protests.
Hong Kong’s hotel performance hit
STR’s initial 2019-2020 RevPAR forecast for Hong Kong was positive, between 2% and 4% growth, but that was revised down once year-to-date RevPAR decreased by 3.5% as of July, Palmqvist said.
“But the big turn was in August, and what’s on the books for September,” he said. “Early estimates of August data is showing a year-over-year decline between 40% and 50% in RevPAR, and as per reports from Hong Kong, it’s hitting hard across retail, F&B, hotels and much more, and as reported it’s been commonplace for hotels to enforce staff to take leave during this loss of demand from mainland China.”
STR’s official Hong Kong performance results for August 2019 shows RevPAR decreased 44.4% to 692.63 Hong Kong dollars ($88.32). ADR declined 21.5% to HK$1,074.94 ($137.07), with occupancy falling 29.3% to 64.4%.
Palmqvist said there simply has not been enough time between the 2014 and 2019 protests for the market to reach pre-2014 highs. He added that Hong Kong will require a similarly, fairly substantial period of recovery once the current protests are over, but it’s difficult to forecast when that might happen given Q3 RevPAR projections are already negative and could be worse with softer-than-anticipated September results.
“Given the current uncertainty, that’s anyone’s guess what (recovery) will look like. (The fourth quarter 2019) is important,” he said. “That’s the key quarter for events business that drive high occupancy and average daily rate in the market.”
Hong Kong & Shanghai Hotels’ Kwok said increased supply in Hong Kong and the ongoing tariff disputes between the U.S. and China are also adversely affecting Hong Kong, but that it continues to “create significant value for our shareholders from the long-term appreciation in the capital value of our properties, as well as from the increasing operating yield as each property grows its income over time.”
Singapore’s possible benefit
Concurrent to the Hong Kong protests, hotels in Singapore have seen performance increases, STR data shows. In August, Singapore hotel occupancy increased 1.3% to 91.1%, ADR increased 1.5% to 274.90 Singapore dollars ($198.47) and RevPAR rose 2.8% to SG$250.43 ($180.80).
But Palmqvist said it is hard to see too much of a direct correlation, even if there has been evidence of some events and groups having shifted from Hong Kong to Singapore.
“Singapore is on a growth journey from the softer period after the supply growth of 10,000 keys a few years ago, so when that pressure lifted, demand continued to grow a bit again,” Palmqvist said. “Occupancy bounced back (in Singapore), but in similar fashion as in the past, (average daily rate) is very slow to pick up and return to peak levels.”
Palmqvist said Singapore now has a wider diversity of hotels, some of which are able to drive ADR. Supply might continue to pick up, too, he added.
“(Singapore’s Urban Redevelopment Authority) is releasing some new land lots for hotel purposes, and we can expect some new supply in the next few years, but currently it’s not at the same level as a few years ago,” he said.