Protests cut Hong Kong hotels' occupancy, revenue

InterContinental Hong Kong
Hotels in Hong Kong, like IHG's InterContinental, reported a decline in RevPAR of 44.6 percent in August. Photo credit: IHG

Months of protests and the ensuing negative publicity have taken their toll on Hong Kong's hotels.

STR’s preliminary data for August indicates the lowest occupancy levels since the firm began keeping track, down 29.8 percent year over year to 63.9 percent. 

Demand, the analytics firm found, was down 28.8 percent—even as supply increased 1.5 percent year over year. Average daily rate fell 21 percent to HKD1,086.16, while revenue per available room declined 44.6 percent to HKD694.15.

On his official blog, Hong Kong Financial Secretary Paul Chan wrote the city's tourism, retail and hotel sectors are suffering the most in the wake of the protests. "While August, as summer holiday, is usually a tourism high season, the drop in tourist arrivals has accelerated from a 5 percent year-on-year decrease in July to a 40 percent plunge in August," Chan wrote. "Hotels in some locations had seen occupancy rates drop to about half, while room rates plunged 40 [percent] to 70 percent...It is worrying that so far there is no sign of improvement in the near future." 

Vandalism and disruptions to major transport infrastructure have affected international conferences, exhibitions and mega events, Chan added, noting some conferences and business trips had to be postponed or redirected to other destinations.

Yiu Si-wing, a legislator representing the tourism industry and the chairman of China Travel Service, told the South China Morning Post the city's biggest problem isn't price or marketing, but an overall lack of confidence in the region.

Continued Declines

After a prolonged period of overall performance growth, July was the first month that showed the protest impact on hotel performance with the key metrics down across the board: Occupancy dropped 4.2 percent, ADR declined 7.9 percent and RevPAR was down 11.8 percent.

Related: Protests, trade disputes affect hotels in Greater China

In mid-August, STR predicted a 19.3 percent RevPAR decrease for Hong Kong for Q3. According to STR, the market experienced 19 consecutive months of RevPAR declines following protests in 2014, and there has not been sufficient time between protest periods for the market to reach pre-2014 levels. Prolonged protests could worsen Q3 performance significantly through final August numbers and softer-than-anticipated September results.

Next Steps

Hong Kong's government is already taking steps to improve the country's optics. Last week, Hong Kong's Chief Executive Carrie Lam said she would officially withdraw a controversial bill that allowed extradition to mainland China from Hong Kong—a main motivator for the civil actions. Protests have continued since the announcement (although activists paused on Wednesday to commemorate the Sept. 11 terror attacks in the United States), and more are planned for the coming days. 

In a bid to support small and medium businesses, including hotels, in Hong Kong, Chan announced two new initiatives. The Hong Kong Mortgage Corp. Insurance Limited will introduce a new loan guarantee product under the SME (Small and Medium Enterprises) Financing Guarantee Scheme, under which the Hong Kong government will provide a 90 percent guarantee for approved loans to help launch new businesses and support entrepreneurs with "relatively less operating experience" to obtain financing. 

Secondly, SME borrowers can apply for a principal moratorium of up to six months. The moratorium is renewable, subject to a maximum of 12 months in total. During this period, borrowers will have to pay only interest payments 

"I believe that the new relief measures could timely [sic] help SMEs to ease their cash flow pressure," Chan wrote in the blog.