CBRE Asia Pacific Hotels & Hospitality’s Market Update series explores key trends in the region across indicators such as tourism arrivals, hotels performance, supply and investment activity, as well as notable market developments that are relevant to the hotel sector.

In this inaugural issue, they focus on Hong Kong SAR. After a prolonged period of challenging operational conditions, hotel performance in Hong Kong SAR rebounded strongly in 2023 following the removal of pandemic restrictions earlier in the year, which led to an increase in inbound travellers.

Hotel performance was outstanding during the eight-day Lunar New Year holiday in February 2024, with average room occupancy rates and average room rates at or above the same holiday period in 2019. The upturn in hotel performance has been driven by the return of global travellers, particularly mainland Chinese tourists, who account for over 79% of all inbound arrivals over the past 12 months.

With a considerable margin still existing between historical and current overnight visitor numbers, CBRE is confident that there will be further operational growth in Hong Kong SAR in 2024, driven by a recovery in occupancy in well-managed assets. The luxury and upscale segments are expected to see a greater improvement in operating performance in 2024, with these assets having experienced relatively slower price appreciation when compared to other tier 1 markets in the region.

While hotel operational numbers have improved significantly over the past 12 months, the investment market is still presenting challenges at this time. Expectations are that borrowing costs will begin to decline in mid-2024 in tandem with the Federal Reserve, which will promote investment activity. However, negative carry and uncertainty over when interest rates will begin to move will limit chances of a strong uptick in investment volume.

Private investors will continue to drive acquisitions in 2024, with a value-add and opportunistic strategy as their primary focus. Co-living, student accommodation, and serviced residence operators will further expand their footprint by capitalising on the overall shortage of assets in the living sector and the opportunities presented by the Top Talent Pass Scheme.