Hotel sector recovery will be slow: Knight Frank

The market’s tourism industry is seen to remain weak in the short term.

Hong Kong’s hotel industry is expected to recover at a slow pace before the market fully reopens its border to Chinese mainland visitors, according to Knight Frank.

In a report, Knight Frank said that Hong Kong’s overall tourism industry is expected to remain weak in the short term, even with the lifting of the hotel quarantine policy, as other Asian destinations that do not have quarantine rules for visitors will be more attractive.

“Despite the gradual reopening of the border and the relaxation of hotel quarantine rules to ‘0+3,’ the outlook for hotel performance remains of concern,” the report read.

Knight Frank said the Hong Kong dollars link to strong US dollars also makes the city a less attractive tourist destination, whilst more Hong Kong people leave for overseas holidays due to high-value currency, resulting in lower domestic demand.

The situation may continue before 2024 when the US potentially starts slowing the pace of its interest rate hike. 

“In the short term, operators need to be more flexible in providing and adjusting their products and services to cater to domestic hotel demand to secure occupancy and cash flow. It is certain that the new normal for the hotel sector will focus on a quality guest experience and differentiated products offerings,” it said.

In the longer term, Knight Frank said that local and international tourism is expected to rebound to 60% to 70% of its pre-pandemic level which will enable the hotel industry to regain momentum when Hong Kong and the Chinese mainland fully reopen borders.

More investors are expected to target converting hotels to ling-stay rental accommodations in collaboration with co-living operators.

“At this stage, we consider the co-living sector to still be in the early stage of development in Hong Kong. The sector is expected to evolve over time to cater to a more extensive tenant base,” Knight Frank said.