New trends emerge as hotel operators embrace ‘adapt, adjust and accommodate’ mantra for survival
- Eastern Yogic mantra offers important instructions for hotel operators seeking to beat the industry slump
- The slide in demand has given hotel owners a window to revamp concepts, quicken renovations and explore market repositioning
The Covid-19 pandemic brings continued challenges for the industry. While countries with strong domestic markets such as the US, China and Australia have seen some rebound, Hong Kong has been hit especially hard as the sector depends on cross-border and international travel.
The government’s “Designated Quarantine Hotel Scheme” provides some respite and operational cash flow for participating hotels. However, this only accounts for 10.3 per cent (or 8,958 rooms across 33 hotels) of the marketwide supply of 86,915 rooms across 312 hotels.
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Inside Hong Kong's mandatory coronavirus quarantine camp at Penny's Bay
With the holiday season upon us, the supply under the scheme is insufficient to cater to the inbound “quarantine” demand from travellers returning to Hong Kong. With hotels largely fully booked until September, additional hotels are needed to overcome the expected supply deficit.
With quarantine requirements of up to three weeks proving challenging for guests, certain hotel operators have looked to introduce initiatives which focus on the physical and mental well-being of their guests. In-room fitness solutions, virtual happy hours, and themed in-room dining concepts are among ideas implemented so far.
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How hi-tech solutions are being used across Asia to cope with the coronavirus pandemic
With short-stay demand still limited, some hotels have pivoted to the extended-stay market. This has provided alternative accommodation solutions at competitive rates for tenants and would-be flat-hunters.
Food and drink is a key component of full-service hotels. As a direct response to the pandemic, some hotels have opened up their restaurants to home delivery “experiences” and services – something which would typically not have been considered in pre-Covid-19 era.
From an asset management perspective, the drop in demand has given some hotel owners a natural window to revamp concepts, bring forward planned renovations or explore the possibility of repositioning certain properties.
Examples in Hong Kong include Salisterra at The Upper House, the lobby upgrade at Butterfly on Prat, renovation of the guestrooms, lobby and bar at the Four Seasons, and the repositioning or rebranding of The Sheung Wan by Ovolo and The Aberdeen by Dash Living.
Despite the uncertainty, and with some hotel projects on hold or delayed, we have seen new openings globally including the Ace Hotel Kyoto, Niccolo in Suzhou, The Hari Hong Kong, Sheraton Hong Kong Tung Chung, Page 8 London and the imminent opening of Aman New York. The implication is that there is a clear expectation the market will recover.
Even so, Iris Capital’s A$180 million (US$138.7 million) purchase of a portfolio of 17 Ibis hotels in Australia at the end of 2020 and Blackstone’s proposed acquisition in March of an eight-hotel portfolio in Japan from Kintetsu Group have given the wider market a boost.
An uptick in activity in the second half of 2021 is expected with some significant assets and portfolios coming to market.
Significant capital has been raised by private equity funds and certain private families to target distressed, well-priced or “rarely-traded” opportunities in the hotel sector. Still, the anticipated distress has not yet materialised, reflecting the holding power of owners across the region.
Technology will continue to play an increasingly important role in asset acquisitions, with some buyers using a combination of virtual site visits and strong local partnerships to conduct due diligence.
For investors and operators, the market will continue to provide short-term uncertainty and perhaps significant longer-term opportunity. The adversity faced in the past 12 months has bred change. The ability to adapt, adjust and accommodate remains key.
Shaman Chellaram is senior director of Asia valuation and advisory services at Colliers.