HONG KONG: International funds and local investors are snapping up hotels in Hong Kong with the intention of converting them for long-term leasing and student accommodation as the outlook for the city's tourism industry remains uncertain.
In the past, hotel owners were reluctant to offer their properties for sale as millions of international travellers poured in every year. But many changed their minds as the 2019 anti-government protests and the ensuing Covid-19 pandemic brought the industry to its knees.
Since the onset of the coronavirus crisis in early 2020, some 14 hotels have changed hands, the vast majority of them acquired for conversion to co-living or student accommodation, with more in the pipeline as activity accelerates in the sector, said Shaman Chellaram, a senior director of Asia valuation and advisory services at Colliers.
Last week Stan Group, owned by the family of the late billionaire Tang Sing-bor, offered the 598-room Hotel Cozi Harbour View in Kwun Tong for sale at an asking price of HK$3.1 billion (US$400 million), or HK$5.2 million per room.
The indicative price was 22% higher than that of the Hotel Sav in Hung Hom sold by Chuang's Consortium International last December.
"There will be more hotels put on the market later," said Oscar Chan, head of capital markets at JLL in Hong Kong.
Chan expects valuations for hotels in urban areas to keep rising as buyers are attracted by the potential of a stable income from long-term leasing or co-living, as opposed to traditional guest revenues.
Investors may also choose to tap the growing demand for student accommodation. The conversion of hotels for that purpose is a new trend in Hong Kong.
Four months ago AEW Value Investors Asia, a closed-end private equity fund established in Luxembourg, bought the 388-room, 24 storey Hotel Sav, which is located close to four universities, for HK$1.65 billion, or HK$4.26 million per room.
"The buyer could consider converting the hotel into student accommodation as it provides a stable rental income, which makes the investment less risky than a traditional hotel," said Willis Mak, executive director and head of private clients for Greater China Capital Markets at Knight Frank, which acted on behalf of the seller, Chuang's Consortium.
Hotel Sav is close to Hong Kong Polytechnic University, City University of Hong Kong, the Baptist University and the Hong Kong Metropolitan University, which are all favourites among mainland Chinese students.
"Investors are attracted by the relative resilience and stable cash flows [of long-term leasing], whilst also addressing the need for alternative accommodation solutions in the city," said Chellaram. " We are seeing an increasing amount of joint ventures as investors and operators look to share the risk."
Other investors are looking to identify countercyclical opportunities to acquire hotels for traditional use, although the uncertainty as to when tourism will return makes these deals challenging to underwrite, he said.
From 2017 to 2021, Hong Kong saw 44 hotels and serviced apartments change hands, representing an investment volume of HK$39.1 billion (US$5.01 billion), said Colliers.
Last year seven hotels were bought for a total of HK$5.92 billion, according to data from JLL.
Key transactions included the Intercontinental Hotel and Kimberley Hotel in Tsim Sha Tsui.
