Hong Kong’s hotel sector is facing a “serious problem” of overcapacity, which is only likely to become more severe over the coming years, a new study has said.
A research paper by Dr Henry Tsai of Hong Kong’s School of Hotel & Tourism Management (SHTM) said that despite consistently high demand for hotels in the city, demand forecasts indicate a significant shortfall in the number of expected bookings in the coming years, compared to the number of rooms available.
Dr Tsai and a co-researcher said the rapid growth of rival cities in the Pearl River Delta is one of the main challenges currently facing the Hong Kong hotel industry. And while they did acknowledge that Hong Kong is set to see a surge of new visitor traffic from the mainland, especially following the competition of the Hong Kong-Zhuhai-Macau Bridge in 2016, they also warned that the city could lose out to its rapidly-expanding neighbours Guangdong province.
It is predicted that Hong Kong will have almost 70,000 hotel rooms by 2013, an increase of more than 17% over four years. Yet despite that increase, the researchers note that the occupancy rate “has not shown a similar promising upward trend” and has remained at around 85% over the past decade.
The researchers estimated that the annual optimal room capacity for Hong Kong hotels will increase from 46,577 rooms in 2010 to 50,584 in 2013. Comparing these figures with the actual numbers of rooms available, they concluded that the industry will experience “serious overcapacity… at the moment and in the foreseeable future”.
Despite the gloomy predictions however, Hong Kong is still outperforming its Pearl River Delta rivals however, in terms of rates and occupancy. In the first quarter of 2013, STR Global’s data shows that Hong Kong’s hotels were 82.8% full and commanding average daily rates (ADR) of US$236. This is higher than Macau (occupancy 81.4%, ADR US$191) and significantly ahead of Shenzhen (65.5%, US$126) and Guangzhou (61.3%, US$108).
But despite this, Dr Tsai suggests that Hong Kong’s hotel industry stakeholders should “carefully re-examine existing and future development plans” for the city, but avoid “blindly adding hotel guestrooms”.
A key factor in Hong Kong is that costs – especially staff wages – are very high. The researchers estimate the waste from each unoccupied hotel room above the optimal capacity to be HK$722 per night, amounting to an overall loss of HK$5.28 billion in 2012 alone. These losses, Dr Tang argues, could have been reduced had “proper capacity planning were in place”.
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