HONG KONG, 1 JUNE 2021 – Leading diversified professional services and investment management company Colliers has today released the Hotel Insights Q2 2021 report, a quarterly digest of key trends in the Asia Pacific hospitality sector.
The report explains how hotels remain attractive given their risk premium and locations, allowing for both yield and capital appreciation. In Asia particularly, tourism and spend remain in a growth phase and continue to present opportunities for investors. Moving onto Hong Kong, the closing of the border with China has cut the sector’s primary source of revenue, but it’s anticipated reopening and the closer alignment with the Greater Bay Area (GBA) provides confidence of future, stable returns.
Govinda Singh, Executive Director, Valuation & Advisory Services | Asia, commented: “The global economic outlook continues to improve, with a cautious return to travel underpinned by a rebound in domestic demand, as witnessed in the US, UK and China. As the vaccination rollout gathers pace and more green lanes or corridors open, we expect a rapid recovery led by pent-up leisure demand, followed by business. Hotels across Asia Pacific should continue to attract capital as the hunt for yield continues. Yields, whilst relatively low currently, reflect capital values growth outpacing income, but this will increase to historic levels as performance improves. For those looking to invest, depending on motivation, most gateway and regional cities across Asia Pacific continue to be attractive.”
Shaman Chellaram, Senior Director, Valuation & Advisory Services | Asia, commented: “Hong Kong’s hotel market represents a major future opportunity when looked at as part of the Greater Bay Area, with access to a ‘wider domestic market’ of over 70 million people. Counter-cyclical investors, owners and operators should consider this moment to enter the market and reposition or rebrand assets to cater to what will be a more experience-driven mix of leisure and business travellers in the future.”
Pureanae Jang, Associate Director, Valuation & Advisory Services | Hong, stated: “Driven by domestic staycation demand and mandatory quarantine measures, hotels in Hong Kong saw a strong recovery during the first four months of 2021. According to STR Global, Hong Kong’s overall average occupancy recorded 50.7% (+24 percentage points YOY) and an Average Day Rate (ADR) of HK$730 (+17% YoY) for the month of April 2021, signalling the start of market recovery towards pre-Covid-19 levels which registered an occupancy rate of 86.5% and an ADR of HK$1,474 for the month of April 2019.”
Increasing interstate travel should improve Sydney hotel performance
In 2019, hotels in Sydney achieved year-round occupancy levels of 85.4%. In 2020, however, full-year occupancy levels were significantly down at a historic low of 43%, compared to the same period in 2019, as the restrictions on travel due to COVID-19 were realised. Demand for hotels in 2020 was predominantly from those undertaking the mandatory quarantine period in hotels and a small proportion of intrastate leisure demand. In the month of March 2021, Sydney hotels recorded a higher occupancy compared to March 2020, where occupancy levels were 48.8%, compared to 47% in March 2020. This may signal that the market is starting to recover.
Deals are limited as hotel owners wait and see
Investors have placed more faith in hotels in urban areas and established resort destinations, with transactions of limited-service hotels still higher than 2017 levels. In addition, Colliers notes that some hotels have managed to break even with the trickle of lesiure and extended-stay business arrivals, while others have signed up as quarantine facilities. Although green lanes for business travel have emerged, the development of travel bubbles has been slow. Deals in areas such as the South Pacific and Southeast Asia have been limited, with owners adopting a wait-and-see approach, as banks are more willing to offer forbearance given stronger balance sheets and lower exposure to leverage covenants.
Cruise industry has been recovering quickly in H1 2021
The cruise industry faced its toughest year in 2020. In Asia, nearly all major cruises have been suspended since March 2020 and have altered future bookings until COVID-19 eases. Nevertheless, the industry is also one of the fastest recovering sectors in 2021. With pent-up demand for overseas travel, along with an increasing number of vaccinated citizens across various countries, the cruise sector in Asia has been picking up steam over the last six months. In Singapore, for example, more than 120,000 people have set sail on “cruises to nowhere,” with no COVID-19 cases on board, since a pilot programme to reboot the cruise industry began last November. We anticipate any meaningful recovery to continue to be directly linked to the removal of quarantine restrictions in both source and destination markets, as demand for cruises continues to ramp up with the rollout of mass vaccinations in Asia and worldwide. This will bode well for both home and destination ports, with Asia poised to become the largest source market for cruises globally over the next decade.
Click here to download the Hotel Insights Q2 2021 report.
