Hong Kong's luxury hoteliers are bracing for more losses in the coming months as a weak market last year gave way to a 'disaster' after the coronavirus epidemic spread globally, prompting companies and promoters to cancel a slew of events in the city.
The average occupancy rate has fallen below 10 per cent in the first two months of this year, according to some of the city's biggest owners, as the hospitality industry suffered from the chain effects of global travel alerts, and a slump in tourist arrivals and consumer spending. The rate fell to 59 per cent in January from 92 per cent a year earlier, the government said.
The coronavirus outbreak is developing into the biggest public health crisis in decades as infection cases grow from Asia to Europe and the Americas, triggering panic buying in supermarkets and selling on stock markets. From the Standard Chartered Marathon to Art Basel and the Hong Kong Rugby Sevens, organisers have pulled numerous events from their Hong Kong calendars this year as hotel operators watched in dismay.
"You see all industries have seen a great chain effect," Adrian Cheng, executive vice-chairman of New World Development, said in a briefing on Friday. "Be it tourism, retail, catering or services, there is an unprecedented fallout."
The market expects the hotel sector in Hong Kong and mainland to continue to be affected by the epidemic in the short term, Cheng said, whose Rosewood Hotel under the NWD umbrella will not escape unscathed. "In 2020, it will adjust downwards further."
A weak market in January "very quickly gave way to disaster", Harbour Centre Development, owner of The Murray luxury hotel in Central, said in an exchange filing on Friday. "Hotel occupancy sank to below 10 per cent in spite of very competitive room rates. Shopping malls turned empty. Out-of-home dining went into hibernation."
The damage has prompted the government to deliver this week a record budget deficit of HK$139 billion (US$17.8 billion) for the coming year to revive growth. The government has said the city's economy could contract further this year, after shrinking last year for the first time since the global financial crisis.
NWD, the fourth largest Hong Kong developer by market value, reported a 27 per cent drop in underlying profit to HK$3.93 billion for the six months ended December 31, dragged down by a loss in its hotel operations., the company said in an exchange filing on Friday.
"Hotel operations recorded a loss mainly due to the impact of Hong Kong's social activities, the drop in tourist arrivals and the pre-operational expenses of new hotel projects in mainland China," the company said.
The average occupancy and room rates of the NWD group's hotels in Hong Kong, which are oriented towards high-end business travellers, have been affected, it added. For instance, at the Grand Hyatt Hong Kong in Wan Chai, the average occupancy rate fell to 53 per cent in the second half of 2019, versus 83 per cent six months earlier.
As of December 31, 2019, the Group owned a total of 17 hotel properties in Hong Kong, mainland China and Southeast Asia, providing more than 7,400 rooms. The newly opened Rosewood Hotel in Tsim Sha Tsui also suffered from a loss as a result, Cheng said in the briefing.
The Murray, the 336-room luxury property in Central that opened in 2018, is losing money as the decline in business travels during the coronavirus outbreak hit its operations.
The hotel, located in the vicinity of Goldman Sachs and Blackrock corporate offices, has "suffered under the pressure of weakened inbound tourism and cancellation of major events," according to Harbour Centre, the 72 per cent-owned hotel and retail arm of Wharf Real Estate Investment Co.
Its occupancy rate is in line with the industry average., the hotel told the Post, and the slump in hotel and retail sectors caused by social unrest and coronavirus have left them "on their knees".
It currently has The Murray, the five-star Marco Polo Hong Kong Hotel on Canton Road, occupied by luxury brands like Louis Vuitton, Gucci and Cartier, Marco Polo Changzhou Hotel and upscale shopping centre IFS Suzhou in Jiangsu Province in China.
Harbour Centre said its hotel operations incurred a loss of HK$76 million for the year ended December 31, compared with a HK$10 million profit in 2018. The current situation is "the worst" it has ever seen for hotel and retail and the group is pessimistic about when the dire situation will end.
NWD, which sold its rights on two properties to MTR Corp on Tuesday, is conserving cash to pick up new opportunities at a later date. "The impact of this epidemic on Hong Kong's economy is even greater than Sars," Cheng said. "In times of plight, cash is king. We keep such ammunition to face the adversity. We will monitor the right opportunity to enter the market again."
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