According to JLL's latest hotel research, Hong Kong will be the fastest growing hotel market in Asia in 2018. Steadily increasing visitor arrivals to Hong Kong have resulted in hotel occupancy rates reaching all-time highs and triggering the return in hotel room rate growth.
Figures from Hong Kong Tourism Board show overnight arrivals to Hong Kong grew 6.2% and Hong Kong's market-wide revenue per available room ("RevPAR") grew 13% year-on-year to HKD1,214 in the first half of 2018. With strong visitor demand fundamentals and relatively few additions to hotel supply, JLL expects this trend of growth to continue through the year, resulting in Hong Kong recording the highest RevPAR growth amongst major hotel markets in Asia for 2018, estimated to be in excess of 10%. Looking beyond 2018, JLL is positive on the outlook of tourist arrivals and RevPAR growth as the market stands to benefit positively from the completion of the Hong Kong-Zhuhai-Macao Bridge and Guangzhou-Shenzhen-Hong Kong Express Rail Link this year. The new transport links will facilitate additional travel to Hong Kong and boost demand for hotels.
Corey Hamabata, Senior Vice President of JLL's Hotels & Hospitality Group reports, "In 2017, we observed market-wide hotel occupancy levels reaching historical peak levels; however average daily rate growth remained subdued until late into the year. Beginning in 2018, we began observing hotels recording strong year-on-year growth in average daily rates, indicating that tightness in the market was enabling hotel operators to demand higher prices. These two forces are now working in tandem and should drive sustained growth in the market over the near and medium term."
Hong Kong currently has nearly 80,000 hotel guest rooms. The compound annual growth rate (CAGR) of new hotel supply in Hong Kong is expected to be 2.4% between 2018 to 2022, below the long-term annual growth rate of 4.3% during the previous ten-year period (2007-2017). The measured growth in supply significantly decreases the likelihood that a glut of new hotel openings would reverse the recent trend of growth in the market.
David Marriott, Senior Vice President of JLL's Hotels & Hospitality Group said, "The outlook of the Hong Kong hotel industry is very positive. As hotels are generally a high fixed-cost business, increases in revenue typically lead to even greater increases in profit. This is especially true when increases in revenue are due to average rate growth instead of occupancy. As a result, we expect hotel owners to enjoy strong profit growth in the coming years."
"Whilst we are projecting growth across all segments, we expect that growth will initially be higher in the budget/mid-scale segment versus the upscale/luxury segment. Hotel owners looking to best capitalize on this growth should be focused on active revenue and channel management as well as ensuring their properties are well-maintained," suggested Marriott.
The investment potential of Hong Kong's hotel market has led to local investors piling into the space. The market has recorded 17 hotel acquisitions since 2017, amounting to a total transaction volume of HKD15.72 billion. "While some investors have acquired hotel properties for conversion of use, the trend of hotel fundamentals show there is also a strong investment thesis for owning hotels in Hong Kong. As a result, we expect hotel investment to remain active in the coming 12 months," added Hamabata.