A major pillar of Hong Kong’s economy, the tourism industry contributed to 4.9% of Hong Kong’s gross domestic product and employed approximately 270,000 people in 2013. That represents 7.2% of the city’s total employment, according to the Census and Statistics Department of Hong Kong.
The latest statistics provided by the Hong Kong Tourism Board revealed that in 2014 visitor arrivals once again registered a double-digit growth of 12% to 60.8 million people over 2013. The growth came largely from the 16% increase in mainland tourists. Mainland China remained as the largest source market for Hong Kong with 47.2 million arrivals in 2014, accounting for about 77% of total visitor arrivals.
As of December 2014, as reported by the Hong Kong Tourism Board, there were 244 hotels with 72,721 rooms in Hong Kong, an increase of 2,704 rooms or 3.9% over 2013. Notwithstanding the increase in supply, the market-wide occupancy edged up from 89% in 2013 to 90% in 2014. With only a marginal increase in supply and the booming demand, the hotel market performance has been consistently outstanding throughout the years.
Market data provided by the Hong Kong Hotels Association indicates the market occupancy has always exceeded 80% in the last decade, with the exception of 2009 when the global financial crisis temporarily weakened corporate travel to Hong Kong. Nonetheless, we observe the market recovered fairly quickly after the weighty drop and the occupancy level climbed back to 86% in 2010. Benefitting from a healthy occupancy performance, the market saw room for rate increments. The average daily rate recorded in the market was 1,453 Hong Kong dollars ($187.18) in 2014.

The hidden challenges
Despite the outstanding past performance, many Hong Kong hoteliers have a more subdued outlook for the market this year, according to the results of Horwath HTL’s “Global sentiment survey” conducted in Hong Kong in the first quarter of 2015.

Since the introduction of the Individual Visit Scheme, which allows residents of designated mainland cities to visit Hong Kong as independent travelers without joining a tour group in 2003, Mainland China has become the major source market for Hong Kong. However, of the 43.7 million Chinese visitors in 2014, less than half stayed overnight. Meanwhile, arrivals from long-haul markets dropped, leading to decreases in the number of overnight visitors and the visitors’ average length of stay. As a result, hoteliers argued the increase in arrivals might not translate into a more prosperous hotel business environment.
In addition, the heavy reliance on Chinese tourists, which constituted 35.9% of hotel roomnight demand in Hong Kong in 2013, raises concerns. Based on the results of the “Hong Kong hotel industry review 2013,” an annual study jointly produced by the Hong Kong Tourism Board and Horwath HTL, less than 30% of stays in top-tier hotels (with an ADR above 2,000 Hong Kong dollars, or $257, in 2014) are from Chinese tourists, while the same figures for 4-star equivalent hotels (with an ADR of around 1,200 Hong Kong dollars or $155) and 3-star equivalent hotels (with an ADR of around 780 Hong Kong dollars or $100) are higher at 35% and 44%, respectively. Mainland tourists primarily seek more inexpensive hotels in Hong Kong, and many who can afford higher rates are now going to alternative travel destinations in the United States or Europe.
Furthermore, Mainland Chinese visitor arrivals to Hong Kong might experience much slower growth in the future, due to the more unstable economy of China, affected by a credit squeeze, weakening exports and the recent depreciation of the Chinese yuan. The ongoing anti-corruption campaign in China and the protests in Hong Kong against mainland visitors are also likely to discourage Chinese arrivals.
Future hotel supply
There is limited land for hotel developments in Hong Kong. Therefore, we expect future hotel developments to occur in the redeveloped old districts under the city’s Urban Renewal Scheme or at more decentralized locations.
According to the Hong Kong Tourism Board, the hotel supply in Hong Kong would increase at a compound-average-annual-growth rate of 4% in the next five years, reaching a total of 303 hotels with 83,408 rooms in 2019. The majority of the new supplies will be in Kowloon, especially in the Yau Tsim Mong and Sham Shui Po districts where large-scale urban redevelopments have been taking place.
There also are initiatives to allow conversions of old industrial buildings and revitalization of heritage buildings into hotels. Examples of the former include the Dorsett Hotels in Mong Kok, Tsuen Wan and Kwai Chung, while examples of the latter are namely the Hullett House Hotel and the Tai O Heritage Hotel. Other heritage buildings that are to be converted into hotels in the future include the historic police station in Wanchai, a historic shop house in Mong Kok, a building in Stanley and also the Murray Building in Central.
To diversify the tourist profile and increase tourists’ length of stay, there are endeavors to develop and expand the meetings, incentives, conventions and exhibitions; cruise; and other tourism attractions in Hong Kong. Alongside these initiatives are the six potential hotel projects near the Kai Tak Cruise Terminal, a potential large-scale hotel adjacent to the AsiaWorld Expo, as well as the two hotels planned in Ocean Park and the third hotel to be built at Hong Kong Disneyland.
Being in a well-established hotel market, most of the future hotels in Hong Kong, especially those converted from old buildings in the city center should be mid-size, locally operated properties.