Are developers snapping up hotel land to convert into higher yielding offices?

The office sector continues to enjoy heated interest from investors.

Hotel transactions were limited in Q1 as the risk of lower returns continue to discourage potential buyers, according to real estate consultant CBRE.

Although traditional hotel metrics continued to strengthen on the back of recovering tourism levels as average daily rate rose from 1,389 to 1,425 in March and citywide occupancy stood at a stable 89% over the same period, only a few smaller deals were recorded in March.

Also read: Embattled hotels brighten up on tourism

“High prices and lower yields compared to other markets continue to deter interest from foreign buyers, although many groups retain a long-term interest in Hong Kong,” the report noted.

CBRE also noted that many buyers appear to be targeting land rather than buildings as a few, notable transactions involving smaller hotels and serviced apartments could potentially be redeveloped into office properties.

Office properties continue to yield high returns amidst heated demand from co-working operators and Mainland companies in the financial and professional services sector with net absorption in the overall office market hitting 634,200 square feet in April. However, hotel valuations are climbing gradually following an improvement in most assets last year, added CBRE. 

Photo from Novotel Century Hong Kong Hotel - Novotel Century Hong Kong Hotel, CC BY 3.0