Visitor decline slows hotel development in Hong Kong

(Hong Kong)

Amid a shaky economy and a downturn in tourism, plans to turn old industrial buildings into hotels in Hong Kong are being abandoned by developers. Currently, about half of these planned hotels are actually in development, while the remainder sit empty. 

Until the economy and the country's tourism numbers improve, owners of these former industrial buildings will likely suspend or abandon their redevelopment plans. Rising construction costs are also an important factor in delays, Charles Chan, a managing director at real estate company Savills, said.

According to the Development Bureau, 21 hotel redevelopment projects have been approved following the government’s six-year industrial revitalization campaign that ended in March. Of these, 10 are either under construction or have been completed. Five projects were "scrapped" for hotel purposes (costing Hong Kong 1,400 hotel rooms) and the remaining six have been left untouched. 

Vincent Cheung, executive director for valuation and advisory services in Asia at Colliers International, said that owners are more likely to sell their abandoned sites than proceed with the hotel development, although he did not discount a market change boosting the appeal of new hospitality projects. 

Development Challenges

In 2015, the number of global visitors to Hong Kong reached 59.3 million—a decline of 2.5 percent from 2014. In the first quarter of 2016, the decline worsened, with arrivals dropping more than 10 percent year-over-year. 

William Cheng Kai-man, chairman of Magnificent Estates, a midscale hotel, said that the decrease of demand is discouraging owners from converting industrial properties to hotels—as are logistical issues. (Giving every room in a former factory a window poses a challenge, he said.) New-build hotels, on the other hand, can be designed to order, maximizing both square footage and revenue.

By the end of 2016, Hong Kong is likely to have an estimated 274 hotels with about 76,950 rooms. By the end of 2017, it will have 292 hotels with about 81,365 rooms.  

Sources: South China Morning Post, Hong Kong Extras