Hong Kong's hotel industry is likely to face more headwinds next year.
A new lodging tax and heightened geopolitical tensions are among "worrying" issues that could further erode the city's appeal as a tourist destination, analysts said.
The government will impose a 3% tax on hotel guests from Jan 1, while president-elect Donald Trump will occupy the White House next month to usher in another rocky period for US-China trade and tourism.
The city's reliance on Chinese tourists have yielded poorer results in recent years as the mainland economy struggled to generate growth after the end of the Covid-19 pandemic. They spent less and stayed for shorter days while the nation's currency weakened, government data showed.
"External factors are definitely worrying, such as the weakening Chinese currency, the strong Hong Kong dollar, the Trump trade wars and tariff [threats]," said William Cheng, chairman of the Shun Ho Group. "Operating costs are equally worrying and will make the hotel industry suffer."
The Shun Ho group operates seven hotels in Hong Kong with 3,000 rooms across the city, including the Best Western in Causeway Bay and the Ramada Hong Kong Harbour View in Sai Ying Pun.
It does not help that Hong Kong has lost some of its lustre this year. The city fell four rungs to 21st in an index of top 100 destinations compiled by Euromonitor International. Singapore made it to the top 10 for the first time since the index's inception in 2019. Tokyo, Taipei, Seoul, Osaka and Bangkok also ranked above Hong Kong.
The index tracks different metrics across six key pillars to generate an overall attractiveness score. The pillars are tourism performance, economic and business performance, tourism policy and attractiveness, tourism infrastructure, health and safety and sustainability.
"Hong Kong has performed comparatively lower on the tourism performance pillar which has impacted the overall city ranking in 2024," said Vishnu Vardhan, research manager at Euromonitor. "China accounts for close to 70% of inbound travellers to Hong Kong and the struggling Chinese economy has further added to the woes."
Hong Kong received 36.7 million visitors from January to October this year, 37% more than in the same period last year, according to Colliers, a property consultancy. Yet, it is only about 70% of the level seen in 2018, it added. Overnight guests rose by more than a third to 18 million.
The number of overnight visitors per month was not much different from last year, with the main bulk of customers coming from the mainland, after discounting the poor first quarter of 2023 when Covid quarantine was scrapped, Cheng said. The dismal retail environment, with many shops and restaurants shuttering, also added to the gloom.
"The mainland Chinese spending power is noticeably weaker this year," he added. "With the convenience of high speed trains, they do not book early but choose to book the cheapest hotel at the last minute, causing a price war among hotels and significantly reducing revenue."
Mainland tourists made up more than three-quarters of arrivals in Hong Kong in the January to October period, according to official data. Per capita spending of overnight visitors from China, however, shrank to HK$5,100 (22,400 baht), 12% lower than in 2023 and 27% below the level in 2018.
The long-haul market, with per capita spending ranging from HK$6,100 to HK$10,500, expanded by more than 50% to 1.6 million visitors, Cheng noted. However, the level is still "insignificant" to lift Hong Kong's tourism segment out of a slump, he added.
Hotel occupancy averaged 84% for the first 10 months of the year, although this varied across hotels, said Shaman Chellaram, senior director, valuation and advisory services in Hong Kong at Colliers, compared with 91% on average in 2018.
Other than the first two months of the year, average room rates in Hong Kong were 10 to 15% weaker than in 2023, Chellaram said. Mainland visitors stayed between 3.1 and 3.4 nights, while other visitors spent between 3.2 nights and 3.5 nights. according to official data.
"Challenges are likely to persist in terms of labour shortages and reduced non-room revenue, although there has been a recent pick up in the latter for some hotels," Chellaram said. "Consumer confidence in mainland China remains muted, so the city will have to work harder to attract higher spending international visitors."
The Shun Ho group has been able to maintain a 95% occupancy rate this year, Cheng said. While revenue grew by 10%, operating costs also rose by 10%, restraining profits, he added.
"Filling up the hotel rooms during the year was difficult during low seasons and even more difficult during high seasons at traditional selling rates," he added.
There is also new competition to contend with. The five-star Hopewell Hotel in Wan Chai, which will offer 1,000 rooms, will launch a soft opening on Dec 10. More will follow.
"The opening of new hotels such as the Dorsett Kai Tak, Hopewell Hotel and potentially The Kimpton will bring a new wave of supply to different areas of Hong Kong, providing new experiences to incoming visitors," Colliers' Chellaram said.