Drop in Chinese visitors hits HK hotels

Hong Kong

Fewer visitors and prospects for slower economic growth are causing something of a stagnation among Hong Kong hotels, with midrange properties outside core areas hurt the most.

February was a tough month for hotels in Hong Kong, with occupancy declining 10 percent to 75.5 percent and revenue per available room dropping 17.3 percent to HK$1,098 ($142), according to STR data. These figures were the lowest Hong Kong has seen in a February in six years.

With China’s other special administrative region, Macau, suffering from a combination of different factors, the news out of Hong Kong provides cause for reflection on the issue that both territories share—a dependence on mainland Chinese visitors.

Daniel J. Voellm, managing partner at HVS Asia Pacific in Hong Kong, told HOTEL MANAGEMENT that the RevPAR decline in February could be attributed to a decline in mainland Chinese visitor arrivals and limited alternatives from other source markets.

“Given the sheer volume of mainland Chinese visitors constituting 69.6 percent of overnight visitor arrivals, there isn’t any quick way out of this,” Voellm said.

Operators are working hard to compensate, however, with Southeast Asian visitor growth rates increasing 11.6 percent and North Asian visitors jumping more than 50 percent, he said.

“More interesting is that we see a shift in demographics, particularly families and younger people as well as males visit Hong Kong less,” Voellm said. Cross-border traffic by land has been most impacted, as has traffic via Individual Visitation Schemes, as opposed to tour groups. Local political turmoil is partly to blame.

“Contributing factors are a significantly deteriorated public perception of Hong Kong as a destination for mainland Chinese after the Umbrella Movement [in 2014], anti-parallel trader protests and touting scandals,” he said. “The ‘Fish Ball Revolution’ on the first day of the Chinese New Year then turned matters worse and many visitors likely cancelled their trips.”

There are other issues at play as well, with modest increases in supply and owners that are fixated on maintaining high occupancy levels who are more willing to discount rates, he added. Medium tariff hotels and those in non-core Kowloon areas suffered the most in occupancy. Conversely, High Tariff A hotels have learned to maintain rate integrity over the years with the smallest decline, but are still down 8.1 percent compared to a market average decline of 10.1 percent.

Looking forward, Voellm sees a period of challenge coming for Hong Kong this year, with key cultural and infrastructure projects facing delays and the opening of Shanghai Disneyland likely to draw mainland visitors from Hong Kong’s Disneyland, which is currently the only Disney park within Chinese territory.

“2016 will certainly be a different year for Hong Kong hotels, as the market is learning to rebalance its tourism market to source markets other than mainland China,” he said. “During a period of modest global and regional economic prospects, this proves to be a difficult exercise. Operators will likely face another period of declining RevPAR as owners support higher occupancy levels in favor of average rates. This will be particularly painful in years to come as it will take time to rebuild rates.”