Asia-Pacific hotel investment made a comeback in 2021, growing 46% year-over-year to $12.1 billion. The sector’s steady rebound has been supported by a growing volume of capital seeking to increase their exposure to the sector, according to CBRE Asia Pacific Hotel Market Outlook – Trends to Watch in 2022.
With borders steadily reopening and travel restrictions easing, investors including REITs, private offices and a growing volume of private equity are acquiring hotels to improve guest offerings in anticipation of pent-up tourism demand, as well as the conversion of some hotel assets into offices and co-living spaces. CBRE believes that new opportunities for the hospitality industry in Hong Kong are emerging from acquisitions and conversions.
“Hotels are among the sectors likely to benefit from the reopening of the region’s borders. The sector offers attractive risk-adjusted returns and asset repositioning opportunities for investors seeking higher yields. Hotels have gained appeal as a potential hedge against inflation due to the industry’s uniquely short rental period, measured in days rather than months or years as with other property types,” said Steve Carroll, head of hotel and hospitality, capital markets, CBRE Asia-Pacific.
Hong Kong Hotel Market Trends
The hospitality sector is becoming one of the most sought after by investors looking for value-added opportunities this year. In Hong Kong, a number of investors are converting hotel assets into co-living spaces.
Over the past six months, foreign funds have acquired Butterfly on Prat, Hotel sáv Hong Kong and Travelodge Central Hollywood Road, with the intention of integrating elements of co-living or student housing into the redevelopment. In mid-February, the planning council received the application to convert ibis Central and Sheung Wan into a residential building. In early April, CBRE successfully advised on the transaction of the Rosedale Hotel in Kowloon, which will be renovated into a co-living space according to the buyer’s plan and ready to open by the middle of next year.
Despite the ongoing pandemic in Hong Kong, the hospitality industry has not seen any significant distressed assets. CBRE found in its 2022 Asia-Pacific Investor Intentions Survey that the number of investors expecting a discount on hotel assets has fallen from 99% in 2021 to 78% this year, suggesting a improvement in asset prices.
The revival of tourism with the lifting of restrictions
As the fifth wave of the COVID-19 epidemic is gradually brought under control, the Hong Kong SAR government is also easing some social distancing measures, lifting the flight ban and reducing the hotel quarantine period for arrivals in april. This decision should give the industry some respite.
Mainland tourists were the main source of tourism to Hong Kong, accounting for nearly 80% of visitors in 2019. Currently, travel across the border between Hong Kong and the mainland remains limited – a situation that will continue to be difficult given the ongoing pandemic outbreak in Hong Kong. Mainland China.
Stephen Lin, Director of Valuation and Advisory Services, CBRE Hong Kong, said“As the industry yearns for a recovery in the tourism market, hotels have sought ways to maintain operations and increase occupancy by continuing the stay-at-home or quarantine hotel approach. Now is a good time for hotel operators and investors to look at what value-added opportunities the assets have to offer.”
Click to view the full CBRE Asia Pacific Hotel Market Outlook – Trends to Watch in 2022 report.