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55
SECTOR BRIEFING
number
DBS Asian Insights
DBS Group Research • December 2017
Hong Kong Hotels
Time to Check In
DBS Asian Insights SECTOR BRIEFING 55 02 Hong Kong Hotels Time to Check In Jeff YAU CFA Research Director jeff_yau@dbs.com Ian CHUI Equity Analyst ianchui@dbs.com Produced by: Asian Insights Office • DBS Group Research go.dbs.com/research @dbsinsights asianinsights@dbs.com Goh Chien Yen Editor-in-Chief Jean Chua Managing Editor Geraldine Tan Editor Martin Tacchi Art Director
DBS Asian Insights
SECTOR BRIEFING 55
03
04 Executive Summary
05 New Hotel Supply In Focus
Hotel Investment Market Heating Up
16 Revisiting the Alternative Use
of Hotels
18 Inbound Tourism on the
Recovery Path
Gradual Change In Tourist Mix
23 Hotel Sector – Light at the End
of Tunnel
27 New Tourist Attractions
28 Better Links with the World
29 Challenges Faced By the Hotel
Industry
31 Appendix
DBS Asian Insights
SECTOR BRIEFING 55
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Executive Summary
V
On the road to isitor arrivals to Hong Kong grew 2.4% in 7M17, mainly driven by the growth of
recovery 4.9% in overnight visitors. Those from short-haul markets and China grew 4.7%
and 5.7%, respectively. For the full year of 2017, we project a 2.4% growth in visitor
arrivals to 58m, driven primarily by overnight visitors. The number of visitors from
China and outside China are forecast to be 2.5% and 2% higher, respectively. During 2017-
21, we estimate that total number of visitor arrivals will grow at a four-year CAGR of 4%, with
a similar increase in both overnight visitors and day-trippers.
Hotel occupancy on The return of overnight visitors has stimulated the recovery of the hotel market. In 7M17,
the rise overall hotel occupancy reached 88%, up 3ppts year-on-year. Medium-tariff hotels (equivalent
to a three-star rating) showed noticeable improvement, with occupancy up 6ppts to 89%
during the period. Occupancies of high-tariff A (equivalent to a five-star rating) and high-tariff
B hotels (equivalent to a four-star rating) are 84% and 89%, up 3ppts and 2ppts, respectively.
Medium-tariff hotels With rising occupancy on one hand and a low comparison base on the other, medium-tariff
hotels have regained pricing power. Their room rates grew modestly by 6.9% in 7M17, with
growth momentum likely to accelerate. This, coupled with occupancy gains, led to overall
RevPAR rising c.15%. On the other hand, room rates of high-tariff A hotels remained under
pressure, declining 5.7% in 1H17. This resulted in a marginal 2.2% decline in RevPAR.
Growth in hotel supply We forecast total hotel-room supply to increase at a five-year CAGR of 4.3% between 2016
and 2021, higher than the corresponding growth of 3.6% in 2011-16. Based on our projection
of the growth of overnight visitors and hotel-room supply, we forecast hotel occupancy to
stand at 90% for 2017, and then hover around 89-91% in 2018-21. With consistently high
occupancy expected, hotel room rates and therefore RevPAR should see upward pressure.
Potential Given buoyant commercial property valuations, we believe an increasing number of well-
redevelopment of located three -to four-star hotels will be redeveloped into office or commercial buildings. If the
hotels Excelsior, J Plus, and Crowne Plaza Hong Kong Causeway Bay are redeveloped into commercial
properties, hotel inventory in the area would be cut by c.1,200 rooms or 12%. This could
potentially moderate the net growth in hotel-room supply, which should in turn push up the
hotel occupancy as well as RevPAR growth.
Buoyant investment Since the beginning of 2017, with a wide array of buyers ranging from local investors to China-
market based developers. Initial property yield has remained relatively low at 4% or below because the
hotel market is at an early stage of recovery and as some hotels are purchased for commercial
redevelopment.
DBS Asian Insights
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New Hotel Supply In Focus
T
During 2006-2016, the supply of hotel rooms increased at a 10-year CAGR of
4.7%, slightly slower than the 10-year CAGR of 5.3% in overnight visitors in the
period. The growth was stronger at 5.9% between 2006-11, and then moderated
to 3.6% between 2011-16.
Diagram 1. Hotel supply growth (2006-2016)
Source: CEIC
Among the three categories, high-tariff A hotels registered the strongest CAGR of 5.3% in
room supply but the increase was skewed toward the first five years. Between 2011 and
2016, the rate of supply growth moderated remarkably, with the five-year CAGR standing
low at 1%. The converse is true for medium-tariff hotel rooms, whose supply rose at a five-
year CAGR of 3.4% in 2006-11 but 6.8% during 2011-16.
Diagram 2. Hotel supply growth in 2006-16 – High-tariff A
Source: CEIC
DBS Asian Insights
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Diagram 3. Hotel supply growth in 2006-16 – High-tariff B
Source: CEIC
Diagram 4. Hotel supply growth in 2006-16 – Medium-tariff
Source: CEIC
The growth in hotel rooms is anticipated to gather momentum in 2017. In 1H17, eight new
hotels, which altogether provide c.2700 rooms, opened for business. They include Kerry Hotel
in Hung Hom, Disney Explorers Lodge, Silka Tsuen Wan in Kwai Chung, Hotel COZI, Wetland
in Tin Shui Wai, and iclub Ma Tau Wai in To Kwa Wan.
As at June 2017, there were 271 hotels in Hong Kong, with a total of 77,553 rooms. High-
tariff A and high-tariff B hotels accounted for 24.1% and 38.6% of total hotel room inventory,
respectively. Medium-tariff hotels made up 30.6% of the total, with the balance (6.7%) being
unclassified hotels. In terms of location, Yau Tsim Mong is the most concentrated hotel district
in Hong Kong, with 23,664 rooms or 30.5% of total hotel stock as of June 2017. This is
followed by Wan Chai (13.2%) and Central and Western (11.2%). Moreover, Kowloon City
and Eastern Hong Kong account for 9.9% and 6.4% of total hotel-room inventory. Kwai
Tsing, Shatin, Tsuen Wan, and Island districts each makes up 4.2-6.4% of total hotel rooms
available. Including guesthouses, the total number of rooms reached 89,819 as of June 2017.
DBS Asian Insights
SECTOR BRIEFING 55
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Diagram 5. Breakdown of hotel-room inventory by type (June-17)
Source: CEIC, HK Tourism Board
Diagram 6. Breakdown of hotel-room inventory by district (Jun-17)
Source: HK Tourism Board
Our analysis suggests that the total supply of hotel rooms will increase at a five-year CAGR of
4.3% between 2016 and 2021.
DBS Asian Insights
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Diagram 7. Hotel supply growth in 2016-21F – All hotels
Source: CEIC
Kwai Chung
Silka Tsuen Wan
Far East Consortium’s Silka Tsuen Wan held
a soft opening in February 2017. This further
expands the company’s hotel-room inventory
in Hong Kong, consolidating its position as
one of the leading owners and operators of
three- to four-star hotels in the city. Located
in Kwai Chung, the property has 409 rooms
targeting travellers seeking affordable hotel
accommodation. It was converted from
Big Orange Industrial Building, acquired in
2012, under the government’s revitalisation
policy for industrial buildings. No premium is
required for this hotel conversion under this
policy since the existing building frame has
been retained.
DBS Asian Insights
SECTOR BRIEFING 55
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Hung Hom
Kerry Hotel Hong Kong
Kerry Hotel Hong Kong in Hung Hom is a
new high-tariff A in Hong Kong. Shangri-
La Asia acquired the site or HK$2.328b, or
HK$3,470psf, through a government tender
in December 2011. Located adjacent to
newly built One HarbourGate on the Hung
Hom harbourfront, this hotel overlooks
Victoria Harbour and has 546 guest rooms.
Opened for business in April 2017, Kerry
Hotel Hong Kong marks the fourth hotel
owned by this hotel group in Hong Kong
and should complement its other hotels.
Besides, Cheung Kong Property is currently
undertaking the extension works at Harbour
Grand Kowloon in Hung Hom to add 360
rooms which should come onstream in 2018.
Central
The Murray, Niccolo
The soon-to-be-opened The Murray, Niccolo
will definitely be in the limelight. Targeted
for opening in late 2017, this luxury hotel,
to be operated under the Niccolo brand, will
offer 336 guest rooms with five restaurants
or bars. It will become the flagship hotel of
this new luxury hotel group, which opened
its first hotel at Chengdu IFS in 2015. The
hotel was converted from the iconic Murray
Building, an ex-government building located
behind Champion REIT’s Three Garden Road.
Harbour Centre Development, Wharf’s
71%-owned listed subsidiary, acquired this
building via government tender for HK$4.4b,
or HK$13,535psf, in November 2013. Total
investment exceeds HK$7b, which translates
into HK$20.8m/room. In our view, this flagship hotel will play a crucial role in increasing the
recognition of the new “Niccolo” brand by travellers. Wharf plans to build more “Niccolo”
branded hotels at its IFS properties in China.
DBS Asian Insights
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Tsim Sha Tsui
Rosewood Hong Kong
New World Development is constructing
this 3m-square-feet mixed-use project on
the Tsim Sha Tsui waterfront. About one-
third of total GFA will be earmarked for
hotel use. The hotel will offer 398 guest
rooms and marks the first in Hong Kong
under the luxury “Rosewood” brand. It
is targeted for opening in mid-2018. This
luxury hotel should ensure foot traffic
to the 1m sf shopping mall and provide
synergetic benefits with an office portion.
North Point
Cheung Kong Property and SHKP (16.HK) are building two hotels on the North Point
waterfront. They will altogether provide >1500 units upon scheduled completion in 2018,
representing c.30% of existing supply in Island East.
Hotel Vic
Hotel Vic is near Victoria Harbour, a
residential/retail project also being built by
SHKP. SHKP acquired this waterfront site for
hotel development via government tender
for HK$2.722b or HK$7,025psf in May2013.
Construction is now well underway. This
waterfront hotel featuring 671 rooms is
expected to open for business in 2018.
Oil Street Hotel project
Cheung Kong Property is developing a hotel-
cum-residential project on the Oil Street
site that housed the former government
supplies depot in North Point. The company
paid HK$6.267b for this waterfront site
in a government tender in August 2011.
This mixed-use development will include
a business hotel which offers 840 guest
rooms. Since this new hotel is opposite the
company’s Harbour Grand Hong Kong,
operational synergies are expected when it
commences operations in 2018.DBS Asian Insights
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Wan Chai
Queen’s Road East hotel project
Emperor International is scheduled to open a
new hotel in Wan Chai in late 2017. Located
near Far East Consortium’s Cosmo Hotel and
Dorsett Wan Chai on Queen’s Road East, this
new hotel will provide 299 guest rooms.
St. Regis Hong Kong
In the area, China Resource Holdings is
constructing a luxury hotel opposite Central
Plaza and Great Eagle Centre. With 129
rooms, this new hotel will be branded under
“St. Regis” and is expected to open for
business in 2018.
Hopewell Centre II
Hopewell Holdings is developing Hopewell
Centre II in Wan Chai, which includes a
conference hotel with 1,028 rooms as
well as retail facilities. Total GFA is 1.09m
sf, c.75% of which is earmarked for hotel
use. Total investment is estimated to reach
HK$9-10b. It will be the largest conference
hotel in Hong Kong with comprehensive
conference facilities. Site formation works are
underway. Due to prolonged site formation
and foundation works, this hotel is now
scheduled to commence operations in 2021.DBS Asian Insights
SECTOR BRIEFING 55
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iclub Ma Tau Wai
To Kwa Wan
I-Club Ma Tau Wai, owned by Regal REIT,
has commenced operations recently.
Located in To Kwa Wan, this hotel contains
340 guest rooms.
Tai Kok Tsui
A consortium equally owned by Paliburg Holdings (617.HK) and Regal Hotels also won
the URA tender for a hotel site in Tai Kok Tsui in June 2015. The building plans have been
approved. This site is being redeveloped into a 288-room hotel and is scheduled to open for
business in 2019.
Island South – Ocean Park
Lai Sun Development was officially awarded Ocean Hotel
the hotel tender by Ocean Park Corporation
in May 2014. The Ocean Hotel is situated
near the Entry Plaza of the waterfront area at
the lowland of Ocean Park. It will be operated
by the Marriott Group and provides 471
guest rooms with GFA of 366,000 sf upon its
targeted completion in early 2018. The total
development cost is estimated at c.HK$4.4b.
In January 2017, a consortium comprising Sino Land (60%) and Empire Group (40%) was
picked to develop Hong Kong Ocean Park Fullerton Hotel to be situated at the site between
Po Chong Wan and Tai Shue Wan, which is adjacent to the forthcoming “Water World”. This
hotel has total GFA of 436,691sf with a maximum of 460 rooms. It will consist of two 10-storey
hotel towers above a four-storey podium. Total project cost is estimated at c.HK$3b.
Lantau - Disneyland
Consistently high occupancy at the existing two hotels prompted Hong Kong Disneyland
(HKDL) to develop the third hotel, the Disney Explorer’s Lodge, which opened for business
at end-April 2017. The Disney Explorer’s Lodge has four distinct gardens featuring South
American rainforests, Polynesian seas, Asian landscapes, and African savannahs, with three
themed restaurants, a shop, and a large outdoor swimming pool. The new exploration-
themed hotel increases the number of room inventory at HKDL to 1,750 from 1,000. This
enables HKDL to attract more guests, particularly for those MICE travellers.DBS Asian Insights
SECTOR BRIEFING 55
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Hotel Investment Market Heating Up
Since the hotel market started showing signs of recovery in early 2017, the hotel investment
market has been heating up rapidly, with a growing number of hotel transactions. There is a
wide array of buyers, ranging from local investors to listed China-based developers. Since the
hotel market is in an early stage of recovery, initial property yields are relatively low, especially
for hotel properties which are purchased for commercial redevelopment.
Henderson Land exits In February 2017, Henderson Land Development (12.HK) agreed to sell Newton Inn in North
the hotel industry Point and Newton Place Hotel in Kwun Tong. Newton Inn was sold to Hong Kong-listed Shun
Ho Property (219 HK) for HK$1b. Shun Ho Property is majority-controlled by William Cheung,
son-in-law of Lee Shau Kee, Henderson Land’s major shareholder.
Newton Inn
Newton Inn is located on Chun Yeung
Street, 5- to 6-minute walk from North Point
MTR Station. The hotel is a three-star hotel.
It contains 317 guest rooms and food &
beverage facilities with GFA of 143,342sf.
In 2016, the hotel made losses. The disposal
price valued each hotel room at HK$3.15m
or the property at HK$6,976psf. Shun Ho
Property will seek to lease the hotel to a
hotel operator for the medium term and has
a long-term plan to convert or redevelop it
into a commercial property.
Newton Place Hotel
Newton Place Hotel in Kwun Tong was sold
to a local property investor (Tang family) for
HK$2.248b or HK$3.76m/room. Located at
Wai Yip Street, Newton Place Hotel is three-
star hotel. It provides 598 guest rooms with
GFA of 235,300sf. The hotel was redeveloped
from an industrial site with land premium
payment of HK$1,257psf. It opened for
business in 2007.
Following these disposals, Henderson Land almost exited the hotel industry. The Kowloon
Newton Hotel in Prince Edward was redeveloped into residential building High Park Grand.
The Hong Kong Newton Hotel in North Point is being redeveloped into an office tower.
Meanwhile, Mira Moon in Wan Chai is the only hotel which is wholly owned by Henderson
Land. This boutique hotel contains 99 rooms and is managed by its listed associates Miramar
Hotels (71.HK).DBS Asian Insights
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The Tang family, which purchased the Newton Place Hotel, further expanded its hotel presence
in Hong Kong in August 2017. It acquired Hotel Bonaparte in Wan Chai for HK$450m or
HK$5.6m/room from Rhombus Group. The initial property yield stands at c.3.5%. Located
at Morrison Road between Wan Chai and Causeway Bay MTR stations, the hotel opened for
business in 2008, with 80 guest rooms.
Silka West Kowloon
Unlocking the hidden Far East Consortium sold Silka West Kowloon
value of small hotels Hotel in Tai Kok Tsui to Golden Wheel Tiandi
Holdings for HK$450m or HK$3.19m/room
in May 2017. Completed in 2005, Silka West
Kowloon Hotel is a three-star hotel with 141
guest rooms. Following the completion of the
transaction, Far East Consortium will provide
hotel-management service and return
guarantee for six years. If gross operating
profit is less than HK$18m a year, Far East
Consortium will make up the shortfall. On the
other hand, if gross operating profit exceeds
HK$18m, Far East Consortium is entitled to
share 50% of the surplus. Put differently,
Golden Wheel Tiandi acquired this hotel at
an initial property yield of 4%.
A Singapore-based property fund sold Butterfly on Hollywood in Sheung Wan to Travelodge
for HK$850m or HK$5.74m per room. Located at Hollywood Road, this 24-storey hotel
opened for business in April 2011. It comprises 148 guest rooms with GFA of 58,700sf. It is
classified as a medium-tariff Hotel. Based on the acquisition price, we estimate initial yield at
HK$30m/
room. We expect the buyer to redevelop the hotel into a commercial tower.DBS Asian Insights
SECTOR BRIEFING 55
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Regal REIT expanded In June 2017, Regal REIT agreed to buy iclub Ma Tau Wai Hotel in To Kwa Wan from a
its hotel portfolio consortium equally owned by its parents Regal Hotel and Paliburg. The acquisition was
completed in September 2017. Located at Sheung Heung Road, this 22-storey hotel offers
340 guest rooms with GFA of 67,791sf with a soft opening in May 2017. The acquisition price
is HK$1.36b or HK$4m per room. Regal REIT leased this hotel to Regal Hotels for a term of five
years, with an option to extend for another five years. The rental will be fixed at 4%, 4.25%,
4.5%, 4.75%, and 5% p.a. of the purchase price for the first five years, and subject to annual
market rental review for the second five-year term if extended. The initial yield is largely in line
with other comparable hotel transactions. Following this acquisition, Regal REIT will own nine
hotels with >4,900 guest rooms.
Diagram 8. Selected hotel transactions
Date Property Location No. of Price Price Est. Buyer Seller Remark
Rooms (HK$m) (HK$m/ Initial
rm) yield
(%)
Jan-17 J Plus Causeway Bay 56 1,700 30.36DBS Asian Insights
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Revisiting the Alternative Use
of Hotels
I
n the recent two years, commercial property values in Hong Kong have been appreciating
rapidly, supported by solid demand from a wide variety of buyers including property
funds, local investors, and China-based corporates. This has prompted hotel owners to
revisit the value proposition of their own properties for alternative use. In some cases,
the owner could enhance the property values noticeably via converting or redeveloping it
for office use from hotel. In general, it is also easier to manage the daily operations of an
office property than a hotel.
The Excelsior
Singapore-listed Mandarin (MAND.SP)
decided to test market interest in the
possible sale of The Excelsior, Hong Kong,
given the buoyant commercial market.
Opened for business in 1973, The Excelsior
is located on the waterfront of Causeway
Bay. This four-star hotel provides 886
guest rooms, the majority of which offers
a panoramic view of the harbour. Earlier,
the company had received approval from
the Buildings Department for redeveloping
the hotel into a commercial building with
GFA of 683,508sf. In the recent years,
trophy office property has been very
sought-after by China-based enterprises.
We reckon that The Excelsior, Hong Kong,
if redeveloped into office/retail property,
should command a higher value than if it if
remained as a hotel, by virtue of its premium
location. The market estimates that this
hotel property could fetch c.HK$27b or HK$40,000psf, assuming that it is redeveloped
into a commercial property. This translates into >HK$30m per room, a valuation that
even top-grade hotels in Hong Kong are unable to fetch. As of mid-September 2017,
Mandarin Oriental said it has received bids for Excelsior but no decision has been made
regarding a sale.DBS Asian Insights
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Hotel LKF
In July 2017, Rhombus Group shut down
Hotel LKF in the Lan Kwai Fong area of
Central after operating it for nearly 11 years.
This hotel occupied the high zone of LKF
Tower with 95 rooms, and is being converted
into office space of 85000sf. This move is
sensible, considering the lack of new office
supply in Central in the coming four years.
Crowne Plaza Hong Kong Causeway Bay
In addition to the potential redevelopment
of Newton Inn, J Plus, and The Excelsior into
commercial properties, SEA Holdings (251.
HK) applied to the Town Planning Board
to redevelop Crowne Plaza Hong Kong
Causeway Bay into a commercial property
with GFA of 160,900sf. This hotel currently
comprises 263 guest rooms. Unlike the
Excelsior in the area, Crowne Plaza Hong
Kong Causeway Bay, opened for business
in 2009, is relatively new. Assuming the
Excelsior, J Plus, and Crowne Plaza Hong
Kong Causeway Bay are redeveloped into
commercial properties, hotel inventory in the
area would be cut by c.1,200 rooms or 12%.
We do not rule out the possibility of more well-located hotels being redeveloped into
offices in the coming years. This could potentially moderate the hotel supply growth in
the medium term.DBS Asian Insights
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Inbound Tourism on the
Recovery Path
T
Correction otal visitor arrivals to Hong Kong fell 2.5% to 59.3m in 2015, the first decline since
2004. This was mainly driven by a decline in the number of tourists from Mainland
China (-3%), who made up over three-quarters of total visitor arrivals. Mainland
Chinese tourist arrivals started to decline from June 2015. The strength of the local
currency made “visiting” Hong Kong expensive for tourists. In addition, Europe (including the
UK) and Japan relaxed their visa policy for mainland tourists, which encouraged them to travel
there instead of Hong Kong.
In April 2015, the Hong Kong government modified the “One Visa, Multiple Entry”
arrangement for eligible permanent residents in Shenzhen following rising public outcry over
the excessive growth in the number of the mainland visitors over the past few years, especially
in areas near the border. With the implementation of a modified multiple-entry arrangement,
qualified permanent residents from Shenzhen are allowed to visit Hong Kong once a week.
This led to a gradual fall in day-trippers from China over time.
In 2016, Hong Kong welcomed 42.8m mainland tourists, down 6.7% y-o-y, leading to a 4.5%
decline in total visitor arrivals. Nevertheless, the number of tourists outside China grew 3.1%,
which compensated for the shortfall. Both long- and short-haul markets registered growth.
Even better, overall inbound tourism started to exhibit some signs of stabilisation towards the
year-end, especially in overnight visitors. Compared with 1H16, overnight arrivals to Hong
Kong staged a recovery in 2H16, led by tourists from the mainland. After falling 2.1% y-o-y in
1H16, overnight visitor arrivals improved 1% y-o-y in 2H16. This led to a marginal decline of
0.5% y-o-y for the full year of 2016, which compared favourably with 2015’s 3.9%.
Since the beginning of 2017, Hong Kong has started to see the return of tourists. In 7M17,
total visitor arrivals numbered 33m, representing 2.4% y-o-y growth. This was led primarily
by the number of overnight visitors which grew 4.9% to 15.6m, representing 47.3% of total
visitor arrivals. Overnight visitors from China grew larger 5.7%.
The number of same-day travellers also resumed growth of 0.2% in the same period (2016:
down 7.7%). In particular, the number of Chinese day-trippers rose 0.4%, which compares
favourably with a decline of 8.7% in 2016.DBS Asian Insights
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Diagram 9. Visitor arrivals growth - Overall Diagram 10. Visitor arrivals growth – Overnight visitors
Diagram 11. Visitor arrivals growth – Same-day travellers Diagram 12. Visitor arrival growth – China
Diagram 13. Visitor arrivals growth – Outside China
Sources: CEICDBS Asian Insights
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In our opinion, the weakness in the local currency contributed partly to the return of tourists.
Particularly, the number of mainland tourists, which make up three-quarters of the total,
is positively correlated with the value of the RMB. Contrary to original expectations, the
RMB has appreciated >5% against the HK$ year-to-date. This has stimulated the return of
mainland tourists. By the same token, the currency remains a key swing factor in the industry’s
performance.
Diagram 14. Visitor arrivals from China vs RMB
Source: CEIC, Bloomberg Financial L.P.
By country/territory, the number of tourists from outside China grew 1.8% y-o-y to 8m,
making up 24.3% of the total in 7M17. Visitors from short-haul markets rose 2.5%, driven
mainly by overnight visitors (+4.7%). Key markets such as Japan and South Korea continued
to perform well, with visitors growing 15.3% and 8.8% compared to the corresponding
period in 2016. Those from two growing markets, Indonesia and the Philippines, increased
5.5% and 15.1%, respectively. Those from long haul markets were 0.5% higher in 7M17.
During the same period, there were 25m mainland Chinese visitors, up 2.6% y-o-y, reversing
the downtrend in the previous two years.
For the full year of 2017, we are projecting 2.4% growth in visitor arrivals to 58m, supported
mainly by an estimated 4.7% growth in the number of overnight visitors. The number of
tourists from China and outside China are forecast to be 2.5% and 2% higher, respectively.
For 2017-21, we estimate that the total number of visitor arrivals will grow at a four-year
CAGR of 4%, with similar growth in both overnight and same-day travellers. Chinese tourists
should register a four-year CAGR of 4.4% during the same period. The corresponding growth
for day-trippers is expected to be slightly higher due to the completion of Hong Kong- Zhuhai-
Macau Bridge and Express Rail Link, which should improve the connectivity between Hong
Kong and the Pearl River Delta.DBS Asian Insights
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Gradual Change In Tourist Mix
The lion’s share In terms of guest mix, about three-quarters come from mainland China, making it Hong
Kong’s predominant guest source. Back in 1997, when the sovereignty of Hong Kong was
handed over to China, the mainland only accounted for 20.9% of total tourist arrivals. Its
share has climbed remarkably since 2003, when the Individual Visit Scheme was introduced.
After hitting its peak of 77.7% in 2014, its share started to retreat slightly.
Diagram 15. Total visitor arrivals
Source: CEIC
Diagram 16. Breakdown of visitor arrival by country and region (2016)
Source: CEICDBS Asian Insights
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South Korea has South Korea has been one of the fast-growing sources of visitor arrivals in recent years. From
overtaken the US and 2006 to 2016, the number of South Korean visitors rose at a 10-year CAGR of 6.8% to
Japan 1.39m in 2016, accounting for 2.5% of the total. This made it the third-largest guest market
after mainland China (75.5%) and Taiwan (3.6%). Meanwhile, tourists from the US recorded
sluggish growth in the same period. The number of Japanese tourists also fell by 17%, resulting
in their declining share of total visitor arrivals. In 2016, the US and Japan accounted for only
2.1% and 1.9% of total tourist arrival, respectively, down from 2006’s 4.6% and 5.2%.DBS Asian Insights
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Hotel Sector –
Light at the End of Tunnel
D
riven by the declining number of overnight visitors, overall hotel occupancy in Hong
Kong fell by 4ppts to 86% in 2015, the lowest since 2009, with medium-tariff hotels
experiencing more pressure. The downtrend continued into 2016. Faced with falling
demand for hotel accommodation, hoteliers have been cutting room rates since the
beginning of 2015 in an attempt to minimise occupancy loss. In 2015, overall hotel room
rates declined 9.2% y-o-y.
The hotel market also started to stabilise across the board in tandem with the revival in
overnight arrivals to Hong Kong in 2H16. Overall hotel occupancy gained 2ppts to 88%
and 92% in 3Q16 and 4Q16, respectively. Medium-tariff hotels witnessed swifter occupancy
recovery than other hotels. Their occupancy rate picked up 2ppts to 90% in 3Q16 and 4ppts
to 93% in 4Q16. High-tariff hotels have also been on the road to occupancy recovery since
2Q16. Consequently, Hong Kong’s hotels finished 2016 with occupancy 1ppt higher at 87%.
Diagram 17. Hotel occupancy – Overall Diagram 18. Hotel occupancy –High-tariff A
Sources: CEICDBS Asian Insights
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Diagram 19. Hotel occupancy –High-tariff B Diagram 20. Hotel occupancy – Medium-tariff
Diagram 21. Hotel occupancy – Overall Diagram 22. Hotel occupancy – High-tariff A
Diagram 23. Hotel occupancy – High-tariff B Diagram 24. Hotel occupancy – Medium-tariff
Sources: CEICDBS Asian Insights
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Aided by the recovery in overnight visitor arrivals, hotel occupancy continued its upward
trajectory. In 7M17, overall hotel occupancy reached 88%, up 3ppts y-o-y. Hotel occupancy
should have remained on a recovery path even allowing for a low comparison base in February
2016, when riots broke out in Mongkok over the Chinese New Year period, which further
dampened inbound tourism noticeably. Among different grades of hotels, the medium-
tariff hotels, which were hard hit during the previous downturn, witnessed the strongest
improvement in occupancy. In 7M17, occupancy at medium-tariff hotels stood at 89%, up
6ppts. Occupancy at high-tariff A and B hotels were 84% and 89%, up 3ppts and 2ppts,
respectively.
Diagram 25. Change in room rates – Overall Diagram 26. Change in room rates – High-tariff A
Diagram 27. Change in room rates – High-tariff B Diagram 28. Change in room rates – Medium-tariff
Sources: CEICDBS Asian Insights
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While the recovery in hotel occupancy has been gathering momentum, improvement in room
rates lagged. In general, medium-tariff hotels fared better than their high-tariff counterparts
and they have been able to raise their room rates since 3Q16, aided partly by the low
comparison base. Their room rates increased 1.9%, 2.9%, and 6.9% in 3Q16, 4Q16, and
7M17, respectively. Meanwhile, room rates of high-tariff A hotels remained on the downtrend,
falling 5.7% in 7M17.
With gains in both occupancy and room rates, RevPAR of medium-tariff hotels grew 14.6%
in 7M17. In the same period, RevPAR of high-tariff B hotels went up 3.6% while that of high-
tariff A hotels was 2.2% lower.
Against this backdrop, we believe that operators of three- to four-star hotels should see
remarkable improvement in profitability. Far East Consortium is a case in point. With a
portfolio of 10 three-star or four-star hotels in operation in Hong Kong, the company should
be among the prime beneficiaries of the hotel sector’s recovery. In addition, Langham
Hospitality Investments, which owns three hotels with >1,600 rooms, resumed positive and
above-market-average RevPAR growth in 1H17.
Based on our projection of the growth of overnight visitors and hotel-room supply, we
estimate the overall hotel occupancy will stand at 90% in 2017 and hover around 89-91% in
2018-20. Given consistently high occupancy rates expected, there should be upward pressure
on room rates as well as RevPAR in future years..DBS Asian Insights
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New Tourist Attractions
Water Park at Ocean Park
Ocean Park is constructing a new all-weather water park “Water World” at its existing site
in Wong Chuk Hang. Water World will span twice the size and feature three times as many
attractions compared to the previous facility.
The new Water World is targeted to open in 2H18. It is estimated that the new Water World
would welcome 7,000 visitors per day or 10,500 visitors per day during peak seasons. According
to the government, the length of stay for non-local visitors could be extended by 0.75 days
with the addition of this new water park. This, coupled with the opening of two new hotels at
Ocean Park in 2018 and 2020 respectively, should transform this theme park into a landmark
international resort destination, which holds more appeal to tourists.
Hong Kong Disneyland expansion
In November 2016, Walt Disney unveiled its US$1.4b expansion plan for Hong Kong Disneyland
(HKDL), with the approval from the Hong Kong Legislative Council recently obtained. Three new
attractions are planned. First, a new themed-area based on the “Frozen” animated film will feature
rides, dining, shopping, and entertainment. Second, a new Marvel Comics themed-area includes
an “Iron Man” ride. Third, the castle will be re-modelled and expanded. The full expansion would
bring the total number of attractions to 130 from the current 110. The expansion would involve
the closure of some existing rides and conversion of some existing park space for constructing
new additions which are set to open gradually starting from 2018 till 2023.
West Kowloon Cultural District (WKCD)
The first phase of 40-hectare West Kowloon Cultural District (WKCD), located along the
coastline of the Victoria Harbour, is scheduled to come on stream from 2018 onwards. With total
investment of HK$2.7b, Xiqu Centre has a 1,100-seat Grand Theatre and a 200-seat Tea House
Theatre. Targeted to open in late 2018, this Chinese opera centre will be the first performing arts
venue at the WKCD. Besides, the M+ Museum is scheduled to open to the public in 2019. The
M+ will house a collection of modern visual art, architecture, and moving images.
Announced in December 2016, the Hong Kong Palace Museum is a collaboration between
the West Kowloon Cultural District Authority and the Palace Museum in Beijing. The Beijing
museum will loan a portion of its collection to Hong Kong Palace Museum on a long-term basis.
The Hong Kong Palace Museum will have GFA of c.30,500 sm and exhibition space of c.7,600
sm. Other facilities of the Hong Kong Palace Museum will include a digital gallery, activity rooms,
a lecture theatre, a souvenir shop, and a restaurant. The Hong Kong Palace Museum will be
operated and managed by the West Kowloon Cultural District Authority. Construction works
are expected to commence in 2017 with the museum estimated to open in 2022.DBS Asian Insights
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Better Links with the World
Hong Kong/Zhuhai/Macau Bridge
Hong Kong – Zhuhai – Macao Bridge (HZMB) officially started construction in December
2009. The HZMB will provide land transportation between Hong Kong, Mainland China, and
Macau. The main bridge has a total length of 29.6km, which includes c.6.7km of tunnels.
The construction cost for the main bridge of HZMB is estimated at RMB15.73b, RMB6.75b of
which will be contributed by Hong Kong. The entire project is now scheduled to be completed
by end-2017, following some delays in 2016. Upon completion, HZMB will cut travelling time
between Zhuhai and Hong Kong from >3 hours to c.40 minutes, which could encourage
more residents in the western part of Pearl River Delta to travel to Hong Kong. Besides,
the improved transportation links between Macau and Hong Kong could encourage more
incoming tourists to make a visit to Macau after Hong Kong, thus increasing their length of
stay in Hong Kong.
Express Rail Link
The Express Rail Link (XRL) will connect Hong Kong to China’s high-speed railway network
via Guangzhou and Shenzhen. Construction for the 26-km XRL commenced in 2010 and
the cost estimate for the Hong Kong portion is c.HK$85.3b. The terminus of the XRL is
located at the West Kowloon Cultural District (WKCD). No intermediate stations within Hong
Kong are planned. The XRL is expected to come into service in 3Q18. This should enhance
transportation links between Hong Kong and Southern China, which should be positive for
the city’s long-term inbound tourism growth.
Third Runway at Hong Kong International Airport
The Hong Kong Government gave the green light for the development of the third runway
at the Hong Kong International Airport (HKIA) in March 2015 and granted approval for
reclamation works to be carried out for this runway development project in April 2016. Project
completion is expected by 2023. Total development cost is estimated at HK$141.5b.
The HKIA estimates that the new three-runway system would allow it to handle 30m additional
passengers by 2030. In total, the entire HKIA is projected to handle 102m passengers, 8.9m
tonnes of cargo, and 607,000 aircraft movements per year by 2030. This should be crucial for
inbound tourism growth over the long term.DBS Asian Insights
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Challenges Faced By the Hotel
Industry
A
irbnb has been growing rapidly in recent years. It is an online platform which
allows people to list, find, and rent vacated homes. Vendors list their vacant
apartments or rooms, specifying the type of amenities provided and the listing
price. Travellers view the aggregate listings in their holiday destination and
filter these listings in accordance with their specific criteria, such as location, price, type of
property, amenities etc.
Airbnb provides travellers with a convenient platform to search for a wider variety of
accommodation, which tends to be cheaper than hotels. It also offers vendors additional
income for vacant spaces.
In return, Airbnb charges a service/processing fee to both travellers (an additional servicing
fee of 6-12% on top of each transaction amount) and vendors (a processing fee of 3% for
each transaction amount).
Airbnb operates in an uncharted legal territory. Under the Hotel and Guesthouse
Ordinance, hotel owners or hotel operators are required to apply for hotel licenses,
without which will result in a breach of the Ordinance. However, Airbnb vendors do not
need to have any hotel license.
In our view, tiny flat sizes and lack of vacant space would hinder the growth of Airbnb in
Hong Kong. Given spiralling home prices, most of Hong Kong’s residents are unable afford
to buy large apartments. Under these circumstances, it is hard to imagine that they have idle
space or rooms to rent out as accommodation to travellers. This inevitably affects the supply
of apartments available for short-term lodging. In our view, the current situation is unlikely
to improve in the foreseeable future. Culturally, sharing space with strangers has yet to be
widely accepted among locals.
Given the constraints, Airbnb is unable to cater for the needs of group travellers and
sophisticated business travellers. It may hold appeal to those seeking affordable short-term
accommodation. Overall, we do not expect any head-on competition between traditional
hotels, five star-rated hotels, and Airbnb. We believe that Airbnb targets mainly guests who
book extended stays of more than one week. All considered, the impact of Airbnb on the
Hong Kong hotel industry should not be overplayed.DBS Asian Insights
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Technology advancement could reduce the need for business travel. Businessmen are now
able to interact with each other using virtual alternatives such as video conferencing, which
may have profound implications on the business model of five-star hotels in the long term as
business travellers are their bread-and-butter clientele.
Epidemic diseases could materially impact hotel operations. Severe acute respiratory syndrome
(SARS) was a case in point. Occupancy of some hotels in Hong Kong dived to single-digit
during the SARS outbreak. More importantly, hotel operators do not have any effective
remedial measures if the epidemic disease is prolonged. Hotels are bound to make losses.
Geopolitical uncertainty and terrorist attacks could also undermine travel demand and in turn
adversely affect hotel operations.DBS Asian Insights
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Appendix
Revenue mix
Hotels in Hong Kong derive most of their revenue from room and food & beverage businesses.
But the revenue mix differs across various categories of hotels. For all hotels, room revenue
makes up of c.65% of the total and F&B revenue c.30%. The remainder comes from rental,
spa/health club, telephone services, etc. In recent years, the spa/health club business has seen
a growing share of revenue. Particularly, income from spa/health club accounts for c.3% of
luxury hotels’ total income.
Revenue mix – All hotels
Source: HK Tourism Board
Medium-tariff hotels (three-star hotels) generally derive a higher proportion of income from
rooms than other categories of hotels. It is because hotel operators allocate the bulk of space
for rooms to maximise revenue as their guests or locals seldom prefer to dine at hotels. Room
revenue generally represents 79-80% of total revenue, with F&B making up 16-17%. During
the good times in 2012-14, when hotels are running at high occupancy of >90% - led by an
influx of mainland Chinese tourists, room revenue accounted for as much as 85-86% of the
total. However, during a market downturn, its share of total revenue could fall to c.72% as
hotel operators would be forced to slash the room rate remarkably to maintain the occupancy.DBS Asian Insights
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Revenue mix – Medium-tariff
Source: HK Tourism Board
Revenue mix – High-tariff A
Source: HK Tourism Board
Turning to high-tariff A hotels (five-star hotels), their revenue mix differs substantially from
medium-tariff hotels, with F&B being a more important income source. High-tariff A hotels
usually contain more restaurants, ballrooms, and function rooms as they are the preferred
venues for meetings and conferences as well as wedding banquets. These hotels deriveDBS Asian Insights
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c.37-38% of total income from the F&B business. Among top-grade hotels, F&B revenue
as a percentage of the total could reach c.45%. Since a proportion of F&B revenue comes
from locals, it becomes less dependent on inbound tourism. In general, when inbound
tourism weakens, F&B represents a higher income share. Meanwhile, the room business
accounts for just c.55-56% of high-tariff A hotels’ total revenue, the lowest among different
categories of hotels.
Room and F&B revenue accounted for c.70% and c.25% of high-tariff B hotels (four-star
hotels), respectively. Like medium-tariff hotels, room revenue as a percentage of the total was
comparatively higher at 73-74% during the market upcycle in 2011-14, driven by visitation
of mainland Chinese tourists.
Revenue mix – High-tariff B
Source: HK Tourism Board
Cost Structure
Between 2006-15, departmental expenses and undistributed operating expenses made up
c.68% and c.32% of total operating costs, respectively.
Room operations and the F&B business were two key cost items, representing c.24% and
c.40% of total operating expenses, respectively. Among undistributed operating expenses,
administrative and general expenses accounted for c.10% of total operating costs. This is
followed by marketing and utility costs, each of which made up c.8% of the total. That said,
marketing costs as a percentage of the total remained broadly stable, but utilities accounted
for a declining share of total operating costs.DBS Asian Insights
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Cost structure – All hotels
Source: HK Tourism Board
Hotel operations is labour-intensive. Staff cost is the largest expense for Hong Kong hotels. It
accounted for c.48% of total operating costs in 2006-15. Due to wage inflation, its share of
total operating costs has been rising slightly in recent years.
Operating a hotel involves a significant amount of fixed costs which does not depend on
occupancy rates. This limits the ability of the hotel operators to respond to market headwinds
by containing costs. The resulting high operating leverage leads to relatively high volatility in
hotel earnings.DBS Asian Insights
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Payroll as percentage of total – All hotels
Source: HK Tourism Board
Profitability
Gross profit margins (GOP margins), before deducting the hotel management fee, which
represents some 4% of total revenue, averages 46-47% between 2006-15. High-tariff A
hotels generally delivered slightly lower gross profit margins. This is mainly due to lower
margins for their F&B business, which made up a larger share of total revenue for these
hotels. Meanwhile, medium-tariff hotels offer slightly higher-than-average GOP margins in
the high 40s. In good years such as 2011-14, their GOP margins exceeded 50%. In some
efficiently-managed medium-tariff hotels, gross profit margins could be as high as 60+%.
Moreover, their GOP margins, albeit slightly better than average, exhibit higher volatility. As
their guests are very price-sensitive and hotel accommodation has become more or less a
commodity, room revenue, which makes up the bulk of their revenue, are more volatile than
other categories of hotels. This leads to greater variance in GOP margins for medium-tariff
hotels, which range from low-40s to mid-50s.
Medium-tariff hotels derive their income mostly from hotel guests through room revenue,
while local customers contribute a meaningful share of high-tariff A hotels’ F&B revenue.
Therefore, medium-tariff hotels’ revenue suffers more from slackened inbound tourism.
Barring any severe economic recession, which reduces locals’ propensity to spend, high-tariff
A hotels should see smaller income volatility.
Nonetheless, GOP margins of high-tariff A hotels are generally lower than those high-
tariff B and medium-tariff hotels. Holding the revenue-decline constant, high-tariff A
hotels would see a greater reduction in gross profit due to operating leverage. Moreover,DBS Asian Insights
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medium-tariff A hotels seek minor ways to contain costs during a market downturn. But
high-tariff A hotels have to maintain their brands and are therefore unable to cut costs at
the expense of their services. These aggravate the impact on profit when there is a decline
in revenue during bad times.
GOP margin – All hotels
Source: HK Tourism Board
Sales & Distribution Channels
In recent years, hotel booking websites have been replacing travel agents as a popular
avenue for booking. This evolving trend provides these operators with stronger pricing
power than before. It is not uncommon for them to charge over 10% of room rates
as commission. In an attempt to incentivise hotel guests to make reservations via their
owned website, a growing number of hotel operators, especially international hotel
chains, include some value-added features in the room package offered at their website
such as complimentary breakfast and WiFi. This could help reduce the reliance on third-
party websites as a sales & distribution channel.
Hotel Management
Some hotel owners do not have any expertise in hotel operations. Usually, they secure
an international hotel chain to manage and operate their hotels. The hotel manager is
responsible for day-to-day operations in accordance with the standard prescribed in the
hotel management agreement, which usually has a term of 10 years or longer with an
option to extend. In return, the manager receives a hotel management fee, which usually
comprises 1) a base fee linked to gross revenue and 2) an incentive fee correlated withDBS Asian Insights
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gross operating profit (GOP) or adjusted GOP, which is defined as the excess of GOP over
the hotel management base fee in some cases.
Between 2006 and 2015, hotel management fees, including both base and incentive
fees, represented 3.5-4.1% of gross revenue for the Hong Kong hotel industry.
In recent years, international hotel chains have become increasingly eager to secure hotel-
management contracts to boost their profitability. As a result of rising competition, the
base fee as a percentage of gross revenue has fallen to 1-2% from 3-4% in some cases.
The incentive fee is negotiable, and usually ranges from 3% to 7%.
This business model allows hotel owners to ramp up the operations more efficiently by
tapping substantial management experience, extensive sales distribution channels, and
the well-recognised brands of the hotel managers. However, they are required to comply
with the operating standards set by the international hotel brands, which in turn reduces
their operational flexibility.
Property developers prefer to work with international hotel chains to incorporate
esteemed brands into the hotels in their mixed-use developments in prime locations. In
addition to providing hotel-management expertise, these renowned international brands
also help reinforce the status of these well-located mixed-use projects, making them
the preferred choice among the most-sought-after office and retail tenants. This is best
illustrated by Four Seasons Hong Kong. This prestigious hotel definitely plays a crucial role
in consolidating the leading position of the IFC development. This explains why project
partners, SHKP and Henderson Land, decided not to operate the hotel under their brands.
The MICE Market
Usually MICE visitors plan their visits to Hong Kong a few months before the event. This
allows hotel operators to have more clarity on forward bookings. MICE visitors, though
low-yielding business travellers, dine at hotels more often than other business or leisure
travellers. This helps support the food & beverage operations at the hotels.
Between 2008 and 2016, MICE arrivals accounted for 6-7% of total overnight visitors.
During this period, MICE arrivals grew at an eight-year CAGR of 6.2% to 1.89m, slightly
higher than 5.5% for total overnight visitors. The growth was led mainly by those from
mainland China, whose number has more than doubled to 0.97m from the previous year.
In 2016, mainland Chinese visitors accounted for >51% of total MICE arrivals, up from
35.5% in 2008. Meanwhile, long-haul markets have now less important than before
in terms of MICE arrivals and made up 21.4% of the total in 2016. Short-haul markets
represented 27.5% of total MICE arrivals, down from 2008’s 33.2%. Within the short-
haul markets, South and Southeast Asia outperformed the other regions.DBS Asian Insights
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MICE arrivals – overall (‘000 persons)
Source: HK Tourism Board
MICE arrivals – China (‘000 persons)
Source: HK Tourism Board
Kong Convention & Exhibition Centre is largely running at full capacity, as evidenced by
the number of events held. According to a consultant appointed by the government,
there will be a shortfall of about 130,000sm of exhibition and convention facilities in
Hong Kong during peak periods by 2028. New exhibition and convention centres are
needed. Otherwise, Hong Kong will lag other Asian cities in growing their MICE sectors.
As such, the government has proposed a comprehensive development of Wan Chai
Sports Ground for convention and exhibition venues as well as recreation, sports, and
community facilities.DBS Asian Insights
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How to Secure Land for Hotel Development
Government tender
Government tenders remain a key avenue for developers to acquire land for hotel
development. Since 2011, the government has sold nine sites which are entirely or partly
used for hotel development. Shangri-La Asia’s Kerry Hotel on the Hung Hom Harbourfront
and Emperor International’s hotel in Wan Chai are cases in point. Cheung Kong Property
and SHKP are building two hotels on their North Point sites that were acquired via
government tenders.
In November 2013, Harbour Centre Development, Wharf’s 71%-owned listed subsidiary,
paid HK$4.4b for The Murray Building in Central. To preserve this historic building,
Harbour Centre Development is required to convert, instead of redeveloping, this former
government office tower into a hotel. Upon scheduled completion in late 2017, this hotel
will be named The Murray, Niccolo with 336 guest rooms.
The government is offering a hotel site on the waterfront of Cheung Sha Wan for tender
which will close on 27 October. When completed, this hotel project is expected to provide
about 550 rooms with GFA of 0.37msf.
Urban Renewal Authority
The Urban Renewal Authority (URA) awarded the right to redevelop a site in Tai Kok Tsui
into a 288-room hotel to a consortium equally owned by Paliburg and Regal Hotels in
June 2015. The hotel redevelopment is scheduled to be completed in 2019.
Ocean Park Corporation
In May 2014, Ocean Park Corporation awarded the right to Lai Sun Development to
develop The Ocean Hotel, situated near the Entry Plaza of the waterfront area at the
lowland of Ocean Park, to Lai Sun Development. It will provide 471 guest rooms, with
total development cost estimated at c.HK$4.4b.
In January 2017, a consortium comprising Sino Land (60%) and Empire Group (40%)
was selected as the most preferred proponent in the tender for the development of Hong
Kong Ocean Park Fullerton Hotel, to be situated at the site between Po Chong Wan and
Tai Shue Wan which is adjacent to the forthcoming “Water World”. This hotel has a
maximum of 460 rooms, with total project cost estimated at c.HK$3b.
Hong Kong Airport Authority
In February 2017, the Hong Kong Airport Authority awarded Regal Hotels the contract
to develop a hotel at the SkyCity integrated development on site A1a at the Hong Kong
International Airport (HKIA) in Chek Lap Kok. Covering an area of 71,580sf, the site will
be developed into a multi-storey hotel with >1,000 guest rooms and GFA of 362,743sf. ItDBS Asian Insights
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is scheduled to be completed in 2020. It will be the first stage of the SkyCity development.
Located at the north-eastern corner of the airport island near Asia-World Expo, Skypier,
and Terminal 2 of the HKIA, the mega-sized project will include hotel, retail, dining, and
residential facilities upon full completion. The consideration, which represents a non-
refundable rental payment, is HK$2,189m. The development is expected to cost c. HK$5b.
Redevelopment
Redevelopment is a key source of new hotel supply as in the case of New World Centre
redevelopment. New World Development is constructing this 3msf mixed-use project on
the Tsim Sha Tsui waterfront. About one-third of total GFA will be earmarked for hotel
use. This hotel will be branded under “Rosewood” and open for business in 2018.
Land-use conversion
It is common for developers to acquire buildings or land for hotel development through
a usage-conversion exercise. For example, SHKP paid land premium of HK$352m, or
HK$1,023psf, to convert its industrial site in Siu Lek Yuen (Shatin) for hotel use in 2014.
This hotel is currently under development and will offer 680 rooms when it opens for
business in 1H19. In March 2017, a local investor converted an industrial property at 210-
212 Choi Hung Road for hotel use following the land-premium payment of HK$213m
or HK$1250psf. The owner has obtained approval from the Town Planning Board to
redevelop the site into a hotel with 483 rooms.
In 2009, the government announced the revitalisation scheme of industrial buildings to
promote better use of industrial land and premises. Capitalising on the government’s
revitalisation policy for industrial buildings, Far East Consortium is carrying out the
wholesale conversion of the Big Orange Industrial Building in Kwai Chung into a 409-
room hotel called Silka Tsuen Wan which targets travellers looking for affordable
accommodation. No premium is required for this hotel conversion under this policy since
the existing building frame is retained. This hotel held a soft opening in February 2017.
In practice, it is relatively difficult to convert an industrial building for hotel use, given the
constraint of the existing layout. In addition, the deadline for wholesale usage conversion
under this scheme has lapsed.DBS Asian Insights
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Disclaimers and Important Notices
The information herein is published by DBS Bank Ltd
(the “Company”). It is based on information obtained
from sources believed to be reliable, but the Company
does not make any representation or warranty, express
or implied, as to its accuracy, completeness, timeliness
or correctness for any particular purpose. Opinions
expressed are subject to change without notice. Any
recommendation contained herein does not have
regard to the specific investment objectives, financial
situation and the particular needs of any specific
addressee.
The information herein is published for the information
of addressees only and is not to be taken in substitution
for the exercise of judgement by addressees, who
should obtain separate legal or financial advice. The
Company, or any of its related companies or any
individuals connected with the group accepts no
liability for any direct, special, indirect, consequential,
incidental damages or any other loss or damages of
any kind arising from any use of the information herein
(including any error, omission or misstatement herein,
negligent or otherwise) or further communication
thereof, even if the Company or any other person has
been advised of the possibility thereof.
The information herein is not to be construed as an offer
or a solicitation of an offer to buy or sell any securities,
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to provide any investment advice or services. The
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and/or employees may have positions or other interests
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