Savills (Hong Kong) Limited 23/F Two Exchange Square Central, Hong Kong EA LICENCE: C T: (852) savills.

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1 Savills (Hong Kong) Limited, the independent market consultant, was commissioned by the Trustee-Manager and the Company to prepare a report on the hospitality industry in Hong Kong for the purpose of incorporation in this prospectus. The Trustee-Manager and the Company have included the Savills Market Report in this prospectus because the Trustee-Manager and the Company believe such information would facilitate investors to understand the property market in Hong Kong where the Group s business operations and the Hotels are currently located. The Trustee-Manager and the Company were charged a total of HK$570,000 for the services provided by Savills (Hong Kong) Limited. Savills (Hong Kong) Limited 23/F Two Exchange Square Central, Hong Kong EA LICENCE: C T: (852) savills.com [ ] 2013 The Board of Directors [NWHI Manager Limited], as the Trustee-Manager of [NW Hotel Investments] The Board of Directors [NW Hotel Investments Company Limited] [ ] Dear Sir, The report includes an overview of the Hong Kong hotel market, district overviews of Wan Chai and Tsim Sha Tsui as well as individual analyses of the three hotel properties, namely the Grand Hyatt Hong Kong in Wan Chai, Renaissance Harbour View Hotel Hong Kong in Wan Chai, and Hyatt Regency Hong Kong in Tsim Sha Tsui. IV-1

2 1.0 HONG KONG MACRO ECONOMIC OVERVIEW stated. All data in this section is sourced from the Consensus and Statistics Department unless otherwise 1.1 Key economic indicators GDP From 2003 to 2007, Hong Kong s average real gross domestic product ( GDP ) growth rate averaged 6.5% per annum, as a result of the closer integration with mainland China, as well as flourishing financial and trading sectors. However, the global economic slowdown adversely affected the local economy, with real GDP growth slowing significantly to 2.1% in 2008 and recording a decline of 2.5% in 2009, the first year-on-year decline in real GDP since the Asian financial crisis of Following the quantitative easing ( QE ) measures introduced by many global economies particularly mainland China the economy rebounded with real GDP registering a strong 6.8% growth rate in 2010, followed by a healthy 4.9% growth in With an uncertain external demand environment, real GDP growth softened to 1.4% over For the first quarter of 2013, the local economy grew moderately at 2.8% with a resilient domestic consumption and a mildly improving external trade market. Hong Kong real GDP and growth rate, ,000 1,800 1,600 1,400 1,200 1, HK$ (Billions) GDP (LHS) Growth Rate (RHS) % Source: Census and Statistics Department, Savills Research & Consultancy IV-2

3 1.1.2 CPI The composite consumer price index ( CPI ) recorded an increase of 2.0% in 2007 and 4.3% in Inflation dipped into negative territory from June to September 2009, mainly due to receding price pressures as the economy adjusted downwards, as well as some one-off government relief measures. The composite CPI increased again, due to the booming economy, to register 0.5%, 2.4% and 5.3% growth in 2009, 2010 and 2011 respectively. Because of external (imported inflation due to escalating global food and commodity prices) and internal (the feed-through effect of higher residential rents and the one-off effect of the statutory minimum wage) factors, inflationary pressure continued to increase in 2012, with the composite CPI climbing by 4.1% over the period. Over the first five months of 2013, as a result of a mild increase in housing rent and steady import inflation, the inflationary pressure remained resulting in an average inflation rate of 3.8% Unemployment rates From a ten-year low of 3.2% for the three months ending in August 2008, the seasonally-adjusted unemployment rate increased to a peak of 5.5% for the three months ending in August 2009, reflecting the rapid deterioration of the employment situation as the global economy declined. The employment situation has improved considerably since the swift economic recovery, and the unemployment rate gradually fell from a peak of 5.5% in the three months ending in August 2009 to 3.4% for the three months ending in May 2013, a new low since the Asian financial crisis of 1998, and a level signifying virtually full employment and strong local demand for labour. In December 2012, the working population of Hong Kong stood at around 3.69 million, representing 51% of the total resident population Household incomes The primary measure of the incomes of the Hong Kong population living in private housing estates is private median monthly household income. The previous peak in this measure was recorded in Q1/2008, with the median income reaching HK$25,500 per month, but the subsequent global financial crisis caused a dip in median income to HK$24,000 per month in Q2/2009. The economic recovery, which led to record low unemployment rates, exerted upward pressure on private incomes, which rose to HK$30,000 per month in Q1/2013, a new high since Restaurant receipts In 2008, 2009 and 2010, restaurant receipts recorded growth of 13.1%, 0.6% and 5.1% respectively. Robust local demand has been the key driver of the food and beverage ( F&B ) sector, and rising incomes and favourable employment conditions contributed to more generous spending on F&B in 2011, when a 6.4% increase was recorded. The F&B sector was also affected by the local economic slowdown, with restaurant receipts slowing to a 5.0% growth in Among the different types of restaurants, only fast-food outlets recorded a higher growth rate of 7.6% in 2012 compared with 7.0% for the same period in The restaurant receipts demonstrated a lower growth rate in the first quarter of 2013, recorded at 3.5%. IV-3

4 1.2 Recent economic developments International comparisons Hong Kong is one of the world s most open and dynamic free-market economies. It benefits from its strategic location on the doorstep of mainland China and in the same time zone as many keyasian cities 1. The city serves as a centre for international finance, trade, business and communications. As of 31 December 2012, the Hong Kong Stock Exchange was ranked 6 th among the world s major stock markets in terms of market capitalisation and the second largest in Asia after Japan. Moreover, Hong Kong raised more capital via initial public offerings ( IPOs ) in the three consecutive years from 2009 to than any other global stock market. In terms of merchandise trade, Hong Kong was the 9 th largest trading entity in the world in IPO funds raised on selected stock exchanges, 2011 and 2012 US$ billion Hong Kong Exchanges NYSE Euronext London SE NASDAQ OMX Singapore Exchange Source: World Federation of Exchanges, London Stock Exchange Compared with other countries in the world, Hong Kong is highly ranked in terms of economic strength and competitiveness. In 2012, Hong Kong s GDP per capita stood at $51,494 4 (current international dollars, adjusted for purchasing power parity, [ PPP ]), ranking it ahead of the U.S., the U.K. and Japan. In the World Competitiveness Scoreboard 2013 compiled by the Swiss-based International Institute for Management and Development, Hong Kong was ranked third after U.S. (1 st ), and Switzerland (2 nd ). Hong Kong came first in the Financial Development Index in 2012, ranking it ahead of the U.S. (2 nd ), the U.K. (3 rd ) and Singapore (4 th ). The strength of Hong Kong as a global financial centre is further evident in the Global Financial Centres Index 2013, where it ranked third just behind London (1 st ) and NewYork (2 nd ) but ahead of Singapore (4 th ). In terms of ease of doing business, Hong Kong ranked 2 nd in 2012, just behind Singapore (1 st ) but ahead of the U.S. (4 th ) and the U.K. (7 th ), according to the World Bank Group. According to Bloomberg, Hong Kong is also the best place to do business, followed by the Netherlands, the U.S., the U.K. and Australia Beijing, Shanghai, Singapore, Taipei, Manila, Kuala Lumpur and Perth are in the same time zone as Hong Kong. Source:World Federation of Exchange. Hong Kong ranked 3 rd in Source: World Trade Organization. GDP based on PPP per capita GDP (current international dollars). Source: World Economic Outlook Database, April 2013, International Monetary Fund. IV-4

5 Moreover, Hong Kong was again ranked the freest economy among 177 economies in 2013 by the Heritage Foundation 5, which regularly ranks countries based on ten criteria on a scale of 0 to 100 (100 represents the highest degree of freedom). Hong Kong has retained the top spot for 19 consecutive years, since the index was first published in Since 2009, the Hong Kong dollar has depreciated considerably against many major currencies in Asia Pacific as a result of the U.S. dollar peg, which has added to Hong Kong s price competitiveness and attracted increasing numbers of both international and regional tourists and business people. The Hong Kong dollar has in fact depreciated least against the renminbi, in the order of around 10%, over the past three years. Nevertheless, this discount has already induced tremendous mainland interest in acquiring Hong Kong goods and services, as well as both physical and financial assets Closer integration with mainland China Hong Kong has developed close links with mainland China following the introduction of the mainland s open-door policy in 1978, and this will remain a key factor in the future success of the territory. On 18 October 2005, the Hong Kong government and the Central People s Government reached an agreement to further liberalise measures governing Hong Kong s trade with mainland China under the Closer Economic Partnership Arrangement ( CEPA ). Concessions granted under CEPA give Hong Kong companies a first-mover advantage and encourage better synchronisation in the chain of cross-boundary financial activity, goods production and distribution. CEPA s main contribution to trade between the two partners is that it has removed import tariffs on almost all Hong Kong-made products 6 since January 2006, with the number of products eligible for CEPA s tariff-free treatment expanded from 273 to 1,630 7 from 2004 to Introduced as a liberalisation measure under CEPA, the Individual Visit Scheme ( IVS ) allows residents of selected mainland cities to visit Hong Kong in their own capacity. The coverage of the IVS now includes 49 mainland cities, representing approximately 270 million residents in total. In 2012, mainland Chinese residents made more than 23.1 million trips to Hong Kong under the IVS, an increase of 3.2 times since 2005, according to Hong Kong Tourism Board ( HKTB ) data. These visitors accounted for 66.3% of all mainland visitors or 47.6% of total visitors to Hong Kong in In the first five months of 2013, the arrival of Chinese tourists under IVS was 10.5 million trips when 22% growth over the same period last year. Number and growth of mainland Chinese visitors via IVS, Year 2003* Number ,271 4,259,601 5,550,255 6,673,283 8,593,141 9,619,280 10,591,418 14,244,136 18,343,786 23,141,247 Growth (%) N/A N/A Source: HKTB, Savills Research & Consultancy * Data only available from July 2003 onwards since the official implementation of IVS Based on the 2013 Index of Economic Freedom, The Heritage Foundation. Except for prohibited articles (such as used or waste electrical machinery and medical/surgical products, chemical residues, municipal waste, tiger bones and rhinoceros horns). Source: Hong Kong Trade Department research CEPA Supplement VIII Measures (Summary) Opportunities for Hong Kong February IV-5

6 1.3 Economic outlook In 2013, given the low local jobless rate, steady wage growth and tourist spending will all continue to support retail consumption, consumer spending can be expected to rise modestly. Moreover, the development of new business areas, the Hong Kong government s intention to increase land and thus apartment supply, and the implementation of a comprehensive infrastructure programme 8 over the next few years will advance demand for fixed investments. Over the past ten years from 2003 to , GDP growth has averaged around 4.6% per annum. Facing an uncertain economic situation, the long-term real GDP growth forecast is expected to remain moderate, averaging approximately 3.8% per annum from 2013 to Upward pressure is expected on prices, given sufficient market liquidity, along with the U.S. dollar peg and a weaker Hong Kong dollar against the renminbi, over the next few years. Inflation is therefore projected to average 3.5% per annum over the five-year period from 2013 to ANALYSIS OF HONG KONG S TOURISM MARKET 2.1 Visitor arrivals analysis Travel and tourism competitiveness A short flight from most of Asia s major cities, Hong Kong s easy accessibility makes it especially attractive as a tourist destination. Most of the key Asian cities, such as Beijing, Shanghai, Taipei, Tokyo, Seoul, Singapore, Bangkok, Manila, Kuala Lumpur and Ho Chi Minh City, are all within a four-hour flight of Hong Kong 12. According to the Airport Authority, Hong Kong International Airport ( HKIA ) is well connected with over 100 airlines offering flights to about 170 locations, with daily flights averaging 900 per day between Hong Kong and the rest of the world The Policy Address announced ten major infrastructure projects to promote economic development in Hong Kong and create employment opportunities. The ten major infrastructure projects include the South Island Line (rail), Sha Tin Central Link ( SCL ) (rail), Tuen Mun Chek Lap Kok Link and Tuen Mun Western Bypass, the Hong Kong section of the Guangzhou Shenzhen Hong Kong Express Rail Link, Hong Kong Zhuhai Macau Bridge ( HZMB ), a rail connection between the Hong Kong and Shenzhen airports, Lok Ma Chau Loop, West Kowloon Cultural District ( WKCD ), Kai Tak Development, as well as North East New Territories New Development Areas ( NDAs ) and Hung Shui Kiu NDA. Source: Policy Address, Hong Kong Special Administrative Region ( HKSAR ) government. Source: Census and Statistics Department. Source: FocusEconomics, July Source: FocusEconomics, July Source: Cathay Pacific website. IV-6

7 Hong Kong is ranked 3 rd inasia (just behind Singapore and Japan) and 15 th in the world in terms of travel and tourism competitiveness, according to the Travel & Tourism Competitiveness Index in 2013, compiled by the World Economic Forum, which covers 140 countries around the world Tourist arrivals Historical tourist arrivals Visitor arrivals, No. of Visitors (Millions) Source: HKTB, Savills Research & Consultancy Visitor arrivals jumped significantly in 2003 after a travel advisory bulletin warning against travelling to Hong Kong due to severe acute respiratory syndrome ( SARS ) was lifted by the World Health Organization in June of that year, coupled with the introduction and gradual implementation of the IVS the following month. From 2003 to 2012, visitor arrivals increased by 213% as a result of strong mainland China arrivals, and stood at 48.6 million at the end of The Travel & Tourism Competitiveness Index ( TTCI ) aims to measure the factors and policies that make it attractive to develop the Travel and Tourism ( T&T ) sector in different countries. The TTCI is based on three broad categories of variables that facilitate or drive T&T competitiveness. These categories are summarised into the three subindices of the Index: (1) the T&T regulatory framework subindex; (2) the T&T business environment and infrastructure subindex; and (3) the T&T human, cultural, and natural resources subindex. The first subindex captures those elements which are policy related and generally under the purview of the government; the second subindex captures elements of the business environment and the hard infrastructure of each economy; and the third subindex captures the softer human, cultural, and natural elements of each country s resource endowments. IV-7

8 During the first five months of 2013, visitor arrivals continued to grow, with 21.2 million visitors arriving in Hong Kong, representing a 13.2% year-on-year growth rate over the same period last year. As expected, mainland Chinese arrivals were the largest in number, with 15.6 million or 74% of all visitors, and their 19.8% year-on-year growth rate is almost the only above-average growth among major markets of origin Forecast visitor arrivals The size of the mainland China market and its growing wealth, coupled with positive prospects for intra-asia tourism and long-haul demand, are expected to generate sustainable growth in visitor arrival numbers for Hong Kong over the next three years, despite competition from other Asian countries. Nevertheless, the pace of growth is expected to be more moderate than in previous years. Visitor arrival forecasts, 2013E 2015E Total YoY % change 2013E... 53,631, E... 59,164, E... 65,268, Source: HKTB, Savills Research & Consultancy We expect total visitor arrivals to grow at an average rate of 10.3% per annum from 2013 to 2015, which is the long-term visitor arrival trend growth from 1985 to We have taken such a long period of reference in order to capture the long-term growth trend of visitor arrivals to Hong Kong, and to balance any short-term negative events, such as the Asian financial crisis, SARS and the global financial crisis of 2008, with positive measures such as the IVS and CEPA. The forecast rise in visitor numbers appears dramatic, increasing from 48.6 million in 2012 to 65.3 million by However, the increase represents an annual average growth rate ( AAGR ) of 10.3% over the period compared with an historical AAGR of 12.0% between 2003 and The 10.3% average forecast growth for the period 2013 to 2015 also appears conservative when compared with more recent growth figures in visitor arrivals (18.0% per annum from 2010 to 2012) as well as the year-on-year growth over the first two months of 2013 (15.2%). The forecast visitor arrivals growth also compares favourably with Singapore, where the Singapore Tourism Board has estimated the arrival of 13.5 million to 14.5 million visitors in 2012, and forecast 14.8 million to 15.5 million visitors arriving in 2013 in their latest presentation announced on 27 March 2013, representing an estimated growth of 6.9% to 9.6% from 2012 to IV-8

9 2.1.3 Visitor profile analysis Visitor arrivals by region From 2003 to 2011, visitor arrivals from mainland China increased dramatically from 8.5 million to 28.1 million, a 231.9% increase since the implementation of the IVS. This tremendous growth has made mainland China the single most important source of tourists to Hong Kong and in 2011 their number represented approximately 67.0% of that year s total. Visitor arrivals by market of origin, No. of Persons (Millions) 50 Mainland China 40 Total Visitor Arrivals North Asia The Americas Taiwan Europe, Africa & the Middle East Australia, NZ & South Pacific South & Southeast Asia Source: HKTB, Savills Research & Consultancy Visitor arrivals continued to see robust growth over 2012, with 48.6 million visitors arriving in Hong Kong, representing a 16.0% year-on-year growth rate. Mainland China contributed the largest number of arrivals with 34.9 million or 71.8% of total visitors, and their strong 24.2% year-on-year growth rate is the only above-average growth recorded among major markets of origin for Hong Kong. In 2012, visitors from the U.S. and Europe and other long-haul visitors experienced some slowdown from 2011 (-0.6% for long-haul markets). Visitors from the U.S./Canada and Europe grew by 22.4% and 10.1% respectively from 2009 to 2012, although we believe the slowdown in the long-haul markets in 2012 was only temporary. IV-9

10 Visitor arrivals by purpose of visit According to data from HKTB, of all overnight visitors to Hong Kong in 2012, approximately 60.4% were here on vacation and 18.0% were here visiting friends and relatives, while overnight business travellers represented 15.1% of total overnight visitors and the remaining 6.5% is classified as others. Mainland Chinese overnight business travellers rose significantly by 140.3% from 2001 to 2012, standing at 1,621,300. The increase in mainland Chinese business travellers indicates Hong Kong s importance as a global centre for finance, trade and communications Average length of stay In terms of average length of stay, this has increased from 3.3 nights in 2007 to 3.5 nights in 2012, and mainland Chinese overnight visitors stayed for 3.7 nights in 2012, much longer than short-haul visitors (2.8 nights in 2012). These longer stays for mainland Chinese visitors may reflect an interest in Hong Kong beyond simply shopping. Average length of stay (nights), overall and mainland Chinese visitors, * 2003** Overall Mainland China Source: HKTB, Savills Research & Consultancy * 2002 data covers the period from July to December only ** 2003 data covers the first, third and fourth quarters of the year only Seasonality of visitor arrivals The months of April, October, November and December are the seasonal highs for inbound tourists (excluding mainland Chinese visitors), when looking at the average monthly visitor arrival statistics from 2004 to April and December are holiday seasons in many countries (Easter and Christmas), while October and November are usually the busy months for business travel, with many trade fairs and exhibitions taking place in Hong Kong. However, for mainland Chinese visitors, January, July, August, October and December are all popular months to visit Hong Kong, when looking at the statistics of mainland Chinese visitors alone: January and October are the months in which the traditional golden weeks of Chinese New Year and National Day take place respectively, while July, August and December are school holiday months, during which time families travel, especially ones with children studying abroad. IV-10

11 2.1.5 Tourist expenditure Overall expenditure In 2012, visitor spending 14 totalled approximately HK$296.6 billion (an increase of 380% compared with 2001), HK$185.8 billion of which was spent by overnight visitors, representing a 62.3% share. Approximately 59.5% of total overnight visitor spending was on shopping. Spending preferences differ among visitors from different countries; Asian visitors, particularly mainland Chinese, allocate almost 70% of their spending to shopping, while overnight visitors from the U.S. and Europe tend to spend more on hotels (around 44% to 50%). Breakdown of overnight visitor expenditure by category and major market, 2012 % Shopping Hotel Bills Meals Outside Hotel Entertainment Tours Others Mainland China Taiwan South & Southeast Asia North Asia Europe, Africa & the Middle East The Americas Australia, NZ & South Pacif ic Source: HKTB, Savills Research & Consultancy Over the past few years, overseas visitor spending has played an increasingly significant role in supporting Hong Kong s retail market, with total visitor expenditure on shopping representing approximately 11.6% of the total retail sales value in Hong Kong in 2000, increasing to around 35.5% in Tourist expenditure on hotel bills 15 Alongside increasing numbers of visitor arrivals and their changing travel patterns, especially mainland Chinese tourists who increasingly value more leisure travelling experiences, overnight visitor Including both same-day-in-town visitors and overnight visitors. Source: HKTB. Includes all charges within hotels. IV-11

12 spending on hotel bills have shown a rising trend, increasing from HK$9,183 million in 2003 to HK$37,663 million in 2012, a 310% increase. Overnight visitor per capita spending on hotel bills by region of origin, ,000 HK$ The Americas South & Southeast Asia Mainland China Europe, Africa & the Middle East North Asia Australia, NZ & South Pacif ic Taiwan 3,500 3,000 2,500 2,000 1,500 1, Source: HKTB, Savills Research & Consultancy Overnight visitors from the Americas were the highest spenders on hotel bills, spending an average of HK$3,750 per capita in 2012, followed by European and Australian/New Zealand hotel guests. While still spending the majority of their budgets on shopping (71% in 2012), mainland Chinese travellers aspirations for personal style and leisure mean that they are increasingly willing to stay at higher grade and more expensive hotels for a more comfortable and well-rounded travel experience. IV-12

13 Tourist spending on shopping Overseas visitor spending has played an increasingly significant role in supporting the retail market in the past few years. Total visitor expenditure on shopping items represented approximately 11.6% of 2000 s total retail sales value, and by 2012 this percentage had increased to approximately 35.5%, while in absolute terms such expenditure has increased six-fold from HK$22 billion in 2000 to HK$158 billion in 2012, representing a CAGR of 18.0% per annum. Total visitor shopping spending as a percentage of total retail sales, Total Visitor Spending on Shopping (LHS) % of Retail Sales (RHS) HK$ (Billions) % 40% % 30% 25% 20% 15% 10% 5% % Source: Hong Kong Tourism Board, Census and Statistics Department IV-13

14 2.2 Business traveller market development and trends Business traveller arrival figures 4,000 No. of Visitors (Thousands) Overnight business travellers to Hong Kong, ,000 2,000 1, Source: HKTB, Savills Research & Consultancy In 2012, 3,584,500 business travellers visited Hong Kong, 0.6% more than in Business traveller profiles A large proportion of business travellers in 2012 came from Europe, Africa and the Middle East (31.2%), and the Americas (30.0%), with luxury hotels remaining popular among these groups of visitors. While the global economy continues to grow, demand from business travellers is not expected to recede in the short term. Hotels are considered an easy one-stop solution for business travellers on projects with timeframes ranging from a few days to one month. In terms of length of stay, business travellers stayed much longer (3.4 nights) than their vacation counterparts (2.6 nights) in 2012, with long-haul visitors staying the longest in both categories (4.1 nights and 3.5 nights respectively). Overnight business travellers spent HK$10,031 per capita in 2012, 5.9% higher than in 2011 and 20.1% higher than overnight vacation visitor spending in Business travellers also spent a much higher percentage (38.9%) on hotel bills than their vacation counterparts (15.9%) in 2012, and their per capita spending on hotel bills stood at HK$3,952 in that year. The highest spenders on hotel bills are business travellers from the U.S., who spent HK$6,946 per capita on their accommodation in Hong Kong in 2012, followed by Europeans (HK$5,973) and Australians (HK$5,939) Impact of mainland Chinese business travellers The closer economic integration between Hong Kong and mainland China has induced more business travellers from the mainland over the past few years. Mainland Chinese overnight business IV-14

15 visitors amounted to 1,621,300 in 2012, a 16% increase from 2010, and accounted for 45.2% of total overnight business visitor arrivals in While mainland Chinese business travellers spent HK$11,026 per capita in 2012, which was above average, they spent a significantly smaller portion of that (24.2%) on hotel bills. On average, mainland Chinese business visitors only spent HK$2,668 per capita on their accommodation in 2011, although this already represents a 7.5% increase from 2011, and is 159.0% more than their vacationing counterparts Key drivers of the segment The large numbers of overnight business travellers from the U.S. and Europe, as well as expatriates on short-term projects with higher budgets, usually opt to stay in hotels in traditional core business districts such as Central and Tsim Sha Tsui. 2.3 Tourism/leisure industry development and trends Transportation infrastructure There are a number of transport infrastructure projects underway/under planning which will further enhance the integration of Hong Kong with southern China. Key transport infrastructure projects (see map below) Project Type Expected completion year 1 West Island Line Rail South Island Line (East) Rail Guangzhou Shenzhen Hong Kong Rail 2015 Express Rail Link 4 Hong Kong Zhuhai Macau Bridge Bridge 2016 (HZMB) 5 Tuen Mun Western Bypass and Tuen Mun Chek Lap Kok Link Road 2016 (southern connection of Tuen Mun Chek Lap Kok Link) 2018 (northern connection of Tuen Mun Chek Lap Kok Link) 6 New border control point in Heung Border control 2018 Yuen Wai and Liantang point 7 Sha Tin Central Link (SCL) Rail 2018 (Sha Tin to Hung Hom) 2020 (Hung Hom to Admiralty) 8 Central Kowloon Route Road Under review 9 HKIA third runway Airport Under review Source: HKSAR government, Savills Research & Consultancy IV-15

16 2.3.2 Tourist attraction development prospects There are a number of tourist infrastructure projects underway/under planning which will further improve the attraction of Hong Kong to overseas tourists (see also map below). Project Type Expected completion year 10 New cruise terminal Tourist infrastructure 11 Redevelopment of Ocean Park Tourist infrastructure 12 Expansion of Disneyland Tourist infrastructure 13 West Kowloon Cultural District Cultural and (WKCD) entertainment Mid-2013 (first berth) 2014 (second berth) 2009 (Phase 1) 2012 (Phase 2) Waterworld (under review) 2013 Marvel Hero area (under review) From 2015 (Phase 1) From 2026 (Phase 2) Source: HKSAR government, Savills Research & Consultancy Location map of key infrastructure Railway Road / Control Point 6 Tourist / Others Source: Savills Research & Consultancy IV-16

17 2.3.3 Impact of government policies on the tourism sector The planned tourism infrastructure as well as the further development of the meetings, incentives, conventions and exhibitions ( MICE ) market should attract more overnight vacation and business visitors to Hong Kong. The ongoing expansion of Disneyland Hong Kong, the redevelopment of Ocean Park, the new cruise ship terminal (the first phase completed in mid-2013 and the second to be completed in 2014) and the WKCD (starting from 2015), as well as the planned third phase of the convention centre are all new attractions and potential tourist drivers. In terms of transport infrastructure, the Hong Kong section of the Guangzhou Shenzhen Hong Kong Express Rail Link, HZMB, Tuen Mun Chek Lap Kok Link and Tuen Mun Western Bypass will further enhance the integration of the mainland with Hong Kong. Accessibility to Hong Kong from the mainland will improve greatly upon the completion of these projects in 2015 and 2016 and further strengthen the role of mainland tourists. While the Guangzhou Shenzhen Hong Kong Express Rail Link will significantly shorten travel times from key cities in China to Hong Kong and will inevitably draw more long-haul Chinese visitors to Hong Kong who are likely to stay overnight, the shorter travel time for short-haul Chinese visitors (mainly from Guangdong province) may also mean that more can afford same-day travel and thus reduce the percentage of overnight visitors among this group. In the longer term, the proposed third runway of HKIA should increase the capacity of the aviation industry, benefiting the tourism industry, especially for long-haul travellers from Europe and the Americas. The third runway will have no short-term impact on the tourism industry in Hong Kong. The average length of stay of overnight visitors in 2011 was 3.6 nights. To enhance the competitiveness of the hotel industry and entice visitors to lengthen their stay, the Hotel Accommodation Tax (3%) has been waived since 1 July The government has also undertaken a number of initiatives to promote hotel development to meet the diversified needs of visitors. For example, a number of sites in different parts of Hong Kong have been designated as hotel use only. There are also initiatives to allow both the conversion of old industrial buildings and the revitalisation of heritage buildings into hotels. 2.4 MICE The MICE market has developed into a mature business sector over the past decade, and has recently emerged in Asia. According to the International Association of Professional Congress Organizers, a general definition of the MICE market is as follows: Meetings: A general term indicating the coming together of a number of people in one place, to confer or carry out a particular activity. Meetings can be on an ad-hoc basis or according to a set pattern, as for instance annual general meetings, committee meetings, and so on. Incentives: Meeting events as part of a programme which is offered to participants to reward a previous performance. IV-17

18 Conventions: Participatory meetings designed for discussion, fact-finding, problem-solving and consultation. Compared with a congress, a convention is normally smaller in scale and more select in character features which tend to facilitate the exchange of information. The term convention carries no special connotation as to frequency. Although not inherently limited in time, conventions are usually of limited duration with specific objectives. Exhibitions: Events at which products and services are displayed MICE market development in Hong Kong Despite a structural economic shift away from the territory s traditional manufacturing base, Hong Kong has remained a popular meeting point for buyers and suppliers, given its strategic location, well established infrastructure and other competitive advantages. The completion of Phase 2 of the Hong Kong Convention and Exhibition Centre and the Kowloonbay International Trade & Exhibition Centre ( KITEC ) in the 1990s strengthened Hong Kong s position as the showroom for Pearl River Delta manufacturers. At the same time, the transformation of Hong Kong into an international finance centre and tourist/retail destination made the city a regional hub for international MICE events. The opening of AsiaWorld-Expo at HKIA in 2005 was a milestone in the development of Hong Kong s MICE industry, and the venue has already hosted some high-profile exhibitions, events and concerts, such as the 2006 ITU Telecom World Exhibition and Forum, the 2007 Asian Aerospace International Expo and Congress and a series of China Sourcing Fairs. Given the growing demand for exhibition space from the Hong Kong Convention and Exhibition Centre s clients, the Hong Kong Convention and Exhibition Centre started its second phase of expansion in May 2006, which was completed in April The project has brought 19,400 sq. m. of additional exhibition space to the Hong Kong Convention and Exhibition Centre. Hong Kong is recognised around the world as one of the best destinations for MICE and business travellers; in 2011, Hong Kong was named the Best Business City in the World at the 2011 Business Traveller Asia-Pacific Travel Awards; and in 2012, Hong Kong was ranked first at the Best MICE City Awards at the CEI Asia Industry Awards The Hong Kong Convention and Exhibition Centre was also awarded the Best Convention and Exhibition Centre (Asia Category) at the same Industry Awards. The Hong Kong Trade Development Council ( HKTDC ) has made an enormous effort to bolster the Hong Kong MICE market, especially on the exhibition front. Both the number of exhibitors and trade buyers at HKTDC-organised merchandised trade fairs have increased by more than 40% from FY2005/2006 to FY2011/ , reaching 32,774 and 675,300 in FY2011/2012 respectively. Ten of HKTDC s trade fairs ranked 1 st of their kind in Asia in terms of number of exhibitors in FY2011/2012, while three events, namely the HKTDC Hong Kong Gifts and Premium Fair, the HKTDC Hong Kong Watch & Clock Fair and the HKTDC Hong Kong Electronics Fair (Autumn Edition) hosted the highest number of exhibitors among similar kinds of exhibitions globally in the same year. 16 From 2005/2006 to 2011/2012. Source: HKTDC annual reports 2005/2006 and 2011/2012. IV-18

19 According to a recent HKTDC survey 17, Hong Kong ranked 1 st among Hong Kong, Singapore and Shanghai with respect to the three places perceived strengths in organising trade fairs, consumer fairs, conferences, meetings and incentives, as well as international events. Hong Kong was also the most popular place among tenasian cities 18 that senior executives of multinationals had visited or exhibited in trade fairs over the past three years MICE facilities and upcoming developments In Hong Kong, there are several facilities hosting international, regional and local trade and consumer exhibitions. The Hong Kong Convention and Exhibition Centre, AsiaWorld-Expo and KITEC are the larger-scale and more popular choices among large exhibitors. Given their sizes, strategic locations and the range of facilities provided, a high proportion of exhibitions, conferences and corporate events are held in these three centres. Most major hotels in Hong Kong, aside from lodging, offer theatre halls, classrooms, banqueting facilities and reception areas. Although several hotels have ballrooms which are appropriate for smaller exhibitions, few provide exhibition space and conference facilities with meeting rooms. Due to the tight supply of exhibition space at the Hong Kong Convention and Exhibition Centre and AsiaWorld-Expo during peak seasons, the Hong Kong government is currently examining the feasibility of a Hong Kong Convention and Exhibition Centre Phase 3 expansion. Additionally, the Legislative Council Panel on Commerce and Industry noted in November 2011 that the government was in discussions with AsiaWorld-Expo developers to carry out the AsiaWorld-Expo Phase 2 expansion as soon as possible. If carried out, the AsiaWorld-Expo Phase 2 expansion will increase the facility s exhibition area from 710,424 sq.ft. to 1,076,400 sq.ft. The lack of development land on Wan Chai harbourfront for the Hong Kong Convention and Exhibition Centre Phase 3 expansion, and the location of AsiaWorld-Expo, away from Hong Kong s CBD are the current difficulties facing these two expansion projects. However, the AsiaWorld-Expo expansion project does not face land constraints. In the Legislative Council on 9 January 2013, Mr Gregory So, Secretary for Commerce and Economic Development stated that the government has realised that there is a strong demand for MICE space in the peak season. It was noted that the Hong Kong Convention and Exhibition Centre turned down a total of 44 applications for renting exhibition venues from 2010 to 2012 because of a shortage of space, and among them, only 13 cases were concerned with trade exhibitions. The Hong Kong Convention and Exhibition Centre also declined a total of 89 applications for conference venues over the same period due to a shortage of space, although the targeted dates for most of these applications fell in the peak seasons of the exhibition industry. On the other hand, no applications have been rejected owing to a shortage of space in the last three years at AsiaWorld-Expo. In 2012, the exhibition facilities of the Hong Kong Convention and Exhibition Centre reached saturation on 41 show days, which were mainly during the peak seasons of the exhibition industry. AsiaWorld-Expo was almost full for eight days in 2012, including the period during the September Hong Kong Jewellery and Gem Fair, as well as the October China Sourcing Fair Electronics and Components (Autumn Edition) Hong Kong as Asia s Central Business District, HKTDC Research, November The ten cities include Hong Kong, Singapore, Shanghai, Tokyo, Beijing, Guangzhou, Taipei, Seoul, Kuala Lumpur and Bangkok. IV-19

20 No confirmed timelines of completion can be released at this stage, as these two projects are still in the planning stage Demand for MICE facilities Hong Kong has grown into a centre for conventions and exhibitions in Asia. Approximately 1.6 million overnight MICE visitors came to Hong Kong in 2011, a 9% increase from 2010 and a 33.9% increase when compared with saw just over 1.6 million overnight MICE visitors visiting Hong Kong, a 2.8% increase over the same period last year. Overnight MICE visitors, Year No. of overnight visitors YoY growth (%) , , ,220, ,357, ,607, ,739, ,167, * ,164, ,429, ,562, ,606, Source: HKTB, Savills Research and Consultancy * HKTB changed the data collection methodology from 2008 onwards, and thus the series before 2007 is not strictly comparable to that after 2007 Breakdown of MICE visitors by major market, 2012 The Americas 9.6% Europe, Africa and the Middle East 12.8% Mainland China 45.2% Australia, N.Z. and South Pacif ic 2.9% North Asia 8.6% Macau 0.6% Taiwan 4.2% South & Southest Asia 16.0% Source: HKTB, Savills Research & Consultancy IV-20

21 The highest proportion of overnight MICE visitors was from mainland China at 45.2%, across all major markets in 2012, compared with 35.5% in The total number of mainland Chinese overnight MICE visitors stood at 726,272 in 2012, a 75.4% increase from MICE visitors are usually big spenders; the per capita spending of overnight MICE visitors in 2011 was HK$9,187, an increase of 8.4% over 2010 (HK$8,475) and 25.3% higher than the per capita spending of overall overnight visitors in 2011 (HK$7,333). MICE hotel guests by category, No. of Hotel Guests (Thousands) In-house meetings Other MICE Source: HKTB, Savills Research & Consultancy * 2012 data not available MICE visitors also support the local hospitality industry, and in 2011 around 426,000 identified MICE visitors stayed in hotels, a 189% increase compared with The proportion of MICE hotel guests also increased from 3.7% in 2002 to 5.5% of the total occupied room nights in 2011, and this proportion may possibly be higher as some incentive travellers may have been categorised as individual tourists, and some travellers with multiple business purposes (including attending MICE events) may have been categorised as business travellers. IV-21

22 2.4.4 MICE market outlook Hong Kong s MICE market is developing rapidly despite challenges from nearby cities. Other than the general increase in international visitors and the rising importance of Asia as a MICE destination, Hong Kong has its own critical success factors which make it stand out from other Asian cities and continue to attract overseas MICE visitors: In addition to state-of-the-art MICE facilities, business travellers are provided with a comprehensive and well-served travel experience through a diverse range of hotels, a variety of cuisines as well as international service standards. Hong Kong s reputable and reliable professional service providers ensure solutions are available to event organisers. The relatively high standard of English also makes communication easier for international MICE travellers. Almost one-third of the world s population lives within a five-hour flight of Hong Kong. More than 55 international airlines provide some 1,900 scheduled passenger flights per week connecting the city to more than 170 destinations. Arriving in Hong Kong has been made easier for citizens of more than 170 countries due to a visa-free entry policy. These well-developed flight schedules and custom support reduce travelling times for frequent business travellers to and from Hong Kong. Since 1983, the Hong Kong dollar has been pegged at a fixed rate to the U.S. dollar and is a fully convertible currency, and there are no restrictions on the flow of money into or out of Hong Kong. The comprehensive and fair legal system also ensures that business contracts are honoured and any trade disputes can be resolved in a fair and legal manner. This reduces the currency and legal risks for international buyers doing business in Hong Kong. Hong Kong is perceived as a secure and safe city offering diversity and sophistication with its fusion of east and west. There is both tradition and modernity, and while there is the metropolitan city life with shopping, dining and entertainment there are also large areas of natural beauty, such as the country parks and beaches, which appeal to incentive travellers. Nevertheless, there are some challenges to the further growth of the local MICE market, including the relatively high accommodation costs for visitors, as well as insufficient exhibition space resulting in unmet exhibitor demand. The Hong Kong Convention and Exhibition Centre extension should help boost five of HKTDC s mega fairs to become number one in the world in their industries, according to the HKTDC. In order to attract more exhibitors and buyers, the government and the HKTDC also intend to expand existing trade fairs, as well as further explore opportunities to lure international fairs and conferences from elsewhere in Asia to Hong Kong, successful examples being ITU Telecom World 2006 and Asian Aerospace International Expo and Congress IV-22

23 Instead of entering into head-to-head competition with neighbouring cities such as Guangzhou, Shenzhen and Macau, Hong Kong aims to collaborate with these cities, especially in the conventions and exhibitions sectors, in which Hong Kong can utilise its high English proficiency relative to these cities, and comprehensive business and legal support systems to handle more sophisticated and high-end product trade fairs and international conferences. Meanwhile, Chinese cities can utilise their size and cost advantages to handle large-scale commoditised product trade fairs, and domestic and regional conferences. During their stay in Hong Kong, high-spending MICE visitors provide a strong benefit to the local hospitality, F&B and retail sectors. For those attending trade fairs and large conventions, held in the Hong Kong Convention and Exhibition Centre, AsiaWorld-Expo or KITEC, typically their first choice of accommodation will be high tariff hotels within the vicinity of these facilities, while retail and F&B outlets in the same areas also stand to benefit. 3.0 HONG KONG HOTEL MARKET OVERVIEW 3.1 General hotel market overview Classification of the hotel segments Hotels in Hong Kong can be classified into three main categories (High Tariff A, High Tariff B and medium tariff), based on a scoring system of five key criteria, namely location, facilities, staff-to-room ratio, room rates and business mix, as set out by the HKTB. There were 215 hotels in Hong Kong at the end of Q1/2013, representing 68,303 rooms, with 26% classed as High Tariff A, 38% as High Tariff B, 28% as medium tariff and 8% unclassified. Distribution of hotel stock by class, Q1/2013 High Tariff A 26% Unclassif ied 8% High Tariff B 38% Medium Tariff 28% Source: HKTB, Savills Research & Consultancy IV-23

24 3.1.2 Stock distribution Yau Tsim Mong District, encompassing Kowloon s traditional tourist and retail areas, Mong Kok and Tsim Sha Tsui, has the largest hotel stock at 21,893 rooms or 32% of total hotel rooms, followed by Wan Chai District (14%), and Central and Western District (10%), with the remainder distributed across other districts of Hong Kong, according to the Office of the Licensing Authority, Home Affairs Department. Distribution of hotel stock by district, Q1/2013 Eastern District 7% Central & Western District 10% Yuen Long District 2% Islands District 6% Kowloon City District 9% Kwai Tsing District 4% Kwun Tong District 2% Sai Kung District 1% Sha Tin District 4% Southern District 2% Yau Tsim Mong District 32% Wan Chai District 14% Tsuen Wan District 6% Tuen Mun District 1% Source: Office of the Licensing Authority, Home Affairs Department, Savills Research & Consultancy The hotel sector has expanded rapidly over the past few years as increasing numbers of mainland Chinese tourists enter Hong Kong, and in 2012 alone, 4,188 new rooms were added, with the highest concentration of new rooms in Central and Western District (36.8%), followed by Tseung Kwan O (15.7%) and Kwun Tong (14.7%). Yau Tsim Mong District saw 483 rooms completed in 2012, representing 11.5% of total supply for the year. Another 1,089 new rooms were added in Q1/2013. IV-24

25 3.2 Historical hotel operating performance by segment Overall and by-segment market performance Average daily hotel room rates, occupancy rates and RevPAR, ,600 HK$ Avg Room Rates (LHS) RevPAR (LHS) Occupancy Rate (RHS) % 100 1, , , Source: HKTB, Savills Research & Consultancy Between 1998 and 2003, average hotel room rates stood at HK$706 per night. With the introduction of the IVS in 2003, the average hotel room rate rose by 52% from 2004 to 2008.When the global financial crisis hit, average room rates then dropped by 16% from 2008 to 2009 mainly due to the reduction in the number of long-haul travellers from the U.S., Europe and Australia. Corporate travellers also reduced their travel budgets, with some postponing their travel plans during this cost-conscious period in 2008 and From 2009 to 2012, average room rates rebounded by 46%, with average hotel room rates standing at HK$1,489 per night for the full year of 2012, representing a year-on-year increase of 9.8%. From 2003 to the end of 2012, average hotel occupancy rates showed a strong improvement, rising from approximately 70% to 89%, reflecting the healthy demand for hotel rooms, supported by robust mainland visitor numbers due to the IVS. With both room rates and occupancy rates improving significantly from 2003 to 2012, revenue per available room ( RevPAR ) 19 increased dramatically by 181% over the period. RevPAR averaged HK$1,325 per night in 2012, an all-time high and 24% higher than the previous peak in Estimated by occupancy rate average room rate. IV-25

26 In the first five months of 2013, however, average room rates declined slightly by 1.6% year-on-year, standing at HK$1,452 per night, while occupancy rates stabilized at 87% over the same period, in the face of an uncertain external environment as well as increasing supply. RevPAR decreased by 1.6% over the first five months of 2013 as a result. High Tariff A hotel market performance, ,000 Avg Room Rates (LHS) RevPAR (LHS) Occupancy Rate (RHS) HK$ % 90 2,500 2, ,500 1, Source: HKTB, Savills Research & Consultancy High-budget travellers are the main demand base for High Tariff A hotels, with senior business executives and long-haul travellers usually staying in this category of hotel, especially those situated in business districts or traditional tourist areas, such as Central, Wan Chai/Causeway Bay and Tsim Sha Tsui. Since 1996, average occupancy rates of well above 70% have been recorded for High Tariff A hotels, even during the economic downturns in 1997, 2003 and Average daily room rates increased from around HK$1,600 in 1996 to HK$1,755 in 1997, the then record-high, before declining to HK$1,000 in 1999 due to the Asian financial crisis. Average daily rates climbed to HK$2,100 in 2007 on the back of increasing stock market and IPO activity, as well as a strong economic recovery inducing business demand for high-end hotels. Occupancy rates for High TariffA hotels dropped from 84% in 2007 to 72% in 2009 as the global financial crisis resulted in a fall in high-budget business and long-haul travellers, and room rates followed suit registering a 15.6% decline over the same period. The strongly rebounding economy, alongside improving visitor numbers, helped to increase average occupancy rates to 85% over 2012, with average daily room rates reaching HK$2,457 in 2012, a historical record high. IV-26

27 RevPAR fell from HK$1,798 in 2007 to HK$1,302 in 2009 as a result of declining visitor numbers, in particular long-haul arrivals, over the same period. Driven by an increase in long-haul visitors as well as the changing accommodation patterns of mainland Chinese visitors, RevPAR performance for High Tariff A hotels rebounded and registered an all-time high of HK$1,895 in 2011, while for 2012, the record was broken again with average RevPAR standing at HK$2,088. The first five months of 2013 saw High TariffA hotel operators keen to boost occupancy rates while keeping room rates flat, with occupancy rates improving from 81% in Jan May 2012 to 84% in Jan May 2013, while average room rates declined moderately by 2.1% over the period. RevPAR improved by 1.5% over the same timeframe. High Tariff B hotel market performance, Avg Room Rates (LHS) RevPAR (LHS) Occupancy Rate (RHS) 1,400 HK$ % 100 1, , Source: HKTB, Savills Research & Consultancy High Tariff B hotel demand derives largely from corporate visitors as well as overseas leisure travellers who visit Hong Kong with mid to high budgets. The average High Tariff A hotel room rate surpassed its 2007 and 2011 peaks in 2012, and this may have resulted in some prospective High TariffA guests staying in High Tariff B hotels in view of the rising costs. With the exception of 2003, the year of the SARS outbreak, High Tariff B hotels have maintained a very high average occupancy rate of well over 80% since 1992.Average room rates also showed a strong rising trend, increasing by 88% from HK$517 in 2003 to HK$974 in 2008, before the global financial crisis, when average room rates dropped by 20%. From 2009 to 2011, average room rates rose again by 45% on the back of the growing number of tourists to HK$1,129, while for 2012 average room rates stood at HK$1,228. IV-27

28 RevPAR for High Tariff B hotels increased from HK$631 in 2009 to HK$1,027 in 2011 due to the high occupancy rates. Average RevPAR continued its upward trend in 2012, standing at HK$1,117, and surpassing the previous peak in 1996 for the first time by 2%. The High Tariff B hotel segment was the hardest hit with mid-budget business and vacation travelers both facing tightened travelling expenses, and as a result both room rates (-1.4% year-on-year) and occupancy rates (declined from 89% to 88%) registered drops over the first five months of 2013, leading to a decrease in RevPAR of 2.5% over the period Regional and global comparison Besides posting a steady positive performance over the past few years, Hong Kong hotels also compare favourably with other key regional cities such as Singapore, Shanghai and Beijing. While Hong Kong s RevPAR was second among the four cities in 2012, its RevPAR growth ranked first, showing the strong appeal of the city to regional travellers even during uncertain economic times. Hotel performance comparison, 2012 Hong Kong Singapore Shanghai Beijing Average daily rate (HK$)... 1,489 1, Average occupancy rate (%) RevPAR (HK$)... 1,325 1, RevPAR growth (from 2011 to 2012) (%) Source: HKTB, Singapore Tourism Board, Shanghai Tourist Bureau, Beijing Tourist Bureau, Hong Kong Monetary Authority While hotel room rates in Hong Kong have grown significantly over the past decade due to closer integration with China and rising visitor numbers, their absolute levels still compare favourably with major global financial centres, offering discounts of 37%, 14%, 13% and 8% to hotel room rates in New York, London, Paris and Singapore respectively in Average daily hotel room rates, 2011 HK$ per room per night NewYork... 2,151 London... 1,580 Paris... 1,558 Singapore... 1,481 Hong Kong... 1,356 Source: HKTB, NYC & Company, TRI Hotstats, Paris Convention and Visitors Bureau, Singapore Tourism Board, Hong Kong Monetary Authority * 2012 data not available IV-28

29 3.3 Historical supply and demand by hotel segment Historical supply Hotel inventory has increased steadily since the containment of SARS, and the total number of hotel rooms rose by 30,170 or 79% from 2003 to Q1/2013. In absolute terms, the High Tariff B sector saw the highest room number growth at 10,008 over the period, but High Tariff A hotels recorded the highest percentage increase at 85%, due to the completion of luxury hotels in core tourist areas over the period, such as Four Seasons in Central (399 rooms, 2005), Ritz-Carlton (312 rooms, 2011) and W Hotel (393 rooms, 2009) both in Kowloon Station, as well as Langham Place Hotel Hong Kong (666 rooms, 2004) in Mong Kok Historical demand According to HKTB, there were approximately 7.75 million hotel guests in The guests are broken down into individual tourists, business travellers 20, tour groups and others, at 40.6%, 34.2%, 13.1% and 12.1% respectively. Estimated number of hotel guests by segment, Business Individual Tourist Tour Group Others 3,500 No. of persons (Thousands) 3,000 2,500 2,000 1,500 1, Source: HKTB, Savills Research & Consultancy * 2012 data not available 20 Including government officials, business travellers, in-house meetings and other MICE travellers according to HKTB s classification. IV-29

30 Both business traveller and individual tourist numbers witnessed an upward trend, recording growth rates of 62% and 125% respectively from 2005 to The dramatic increase in mainland Chinese visitors arriving via the IVS scheme (up 234%) was the key driver behind this increase in individual tourists over the period. An increasing number of regional offices of overseas companies in Hong Kong, as well as the growing MICE market, resulted in the sustainable growth in business travellers. According to the Census and Statistics Department, there were 2,516 regional offices located in Hong Kong in 2012 compared with 2,412 in Taking a closer look at hotel guest profiles by hotel segment, High Tariff A hotels welcomed the highest proportion of business/mice travellers in 2011 (44%) among all three hotel categories, while High Tariff B hotels had the highest proportion of individual tourists (43%), and was supported by mid-budget corporate and individual leisure travellers. Medium tariff hotels, on the other hand, had the highest proportion of tour groups (24%) among all hotel categories, although individual tourists were their major guest segment (39%) in 2011, reaping the benefit of the increasing number of mainland tourists coming to Hong Kong via the IVS Supply/demand dynamics Hotel supply/demand dynamics, ,000 50,000 40,000 30,000 20,000 10,000 Rooms Occupied (LHS) Average Available Room for Sale per Day (LHS) Occupancy Rate (RHS) No. of room nights % Source: HKTB, Savills Research & Consultancy * 2012 data not available Although the number of available rooms increased from 30,000 in 1997 to over 50,000 in 2011 a 69% increase demand outpaced supply, with the number of rooms occupied increasing by 98% over the same period. If the slight increase in the number of guests per room (from 1.61 in 1997 to 1.66 in 2011) is taken into consideration, demand rose even further, with the estimated number of hotel guests rising from 3.8 million in 1997 to 7.7 million in 2011, a 104% increase. IV-30

31 3.4 Customer mix/demographics of hotel guests by hotel segment High Tariff A hotels High-budget travellers are the main demand base for High Tariff A hotels, with senior business executives and long-haul travellers usually staying in this category of hotel, especially those situated in business districts or traditional tourist areas, such as Central, Wan Chai/Causeway Bay and Tsim Sha Tsui. Hotel guest profile of High Tariff A hotels, 2011 Long Stay Guest 1% Others 6% Government Officials 0% Airline Crew 4% Other MICE 1% In-House Meeting 5% Tour Groups 8% Business Travellers 38% Individual Tourists 37% Source: HKTB, Savills Research & Consultancy * 2012 data not available IV-31

32 3.4.2 High Tariff B hotels High Tariff B hotel demand comes largely from corporate visitors as well as overseas leisure travellers who visit Hong Kong with mid to high budgets. The average High Tariff A hotel room rate surpassed its 2007 and 2011 peaks in 2012, and this may have resulted in some prospective High TariffA guests staying in High Tariff B hotels in view of the rising costs. Hotel guest profile of High Tariff B hotels, 2011 Long Stay Guest 3% Airline Crew 2% Other MICE 2% In-House Meetings 3% Others 7% Government Offcials 0% Tour Groups 12% Business Travellers 28% Individual Tourists 43% Source: HKTB, Savills Research & Consultancy * 2012 data not available IV-32

33 3.5 Share of hospitality revenue by business mix Percentage distribution of hotel revenue, 2011 Food & Beverage Department 29.2% Telephone Department 0.5% Spa/Health Club 0.8% Minor-Operations Department 1.8% Rentals & Other Income 2.7% Rooms Department 65.0% Source: HKTB, Savills Research & Consultancy * 2012 data not available According to data from HKTB, in 2011 an average of 65.0% of hotel revenue came from room rates, while the F&B department, a second important revenue source, contributed around 29.2% of total revenue. Other activities and services such as spas/health clubs and minor operations contributed the remaining 5.8%. Percentage distribution of hotel revenue by hotel type, 2011 (%) All hotels High Tariff A hotels High Tariff B hotels Medium tariff hotels Rooms F&B Telephone Spa/health club N/A Minor operations Rents and other incomes N/A Total Source: HKTB, Savills Research & Consultancy * 2012 data not available At High Tariff A hotels, room rates accounted for 55.8% of total revenue, while around 36.8% of revenue came from F&B, higher than either High Tariff B or medium tariff hotels.as most High TariffA hotels have an ample choice of restaurants and convention and meeting facilities with catering services, they generally report a higher proportion of income from F&B than other tariff hotels. IV-33

34 3.6 Overview of the F&B business in hotels F&B revenue increased substantially from 2010 to The banquet business recorded the highest F&B check per cover, standing at HK$549 in 2011, 40% more than in This was 40% higher than the next two highest categories, namely Chinese and specialty restaurants (HK$387 and HK$393 respectively), reflecting the lucrative nature of this type of business. Average F&B check per cover 21 by type, 2011 vs Average F&B Check Per Cover (HK$) Banquet Specialty Restaurant Chinese Restaurant Room Services Other Bars & Lounge All Day Dining Lobby Lounge Source: HKTB, Savills Research & Consultancy * 2012 data not available There were 0.49 covers per occupied room, and we believe that most of these are accounted for by overnight delegates participating in conferences/meetings within the same hotel. Average Hong Kong dollar F&B check per cover by hotel type, 2011 All hotels High Tariff A hotels High Tariff B hotels Medium tariff hotels All-day dining Chinese restaurant Specialty restaurant N/A Lobby lounge Other bars and lounges Room service Banquets Source: HKTB, Savills Research & Consultancy * 2012 data not available 21 Per capita spending on F&B. IV-34

35 Chinese restaurants were the major source of F&B checks for High Tariff A hotels in 2011, standing at HK$852 per cover, the highest among any other type of F&B facility, and higher than that of High Tariff B and medium tariff hotels. Banquets came second at HK$697 per cover. For High Tariff B hotels, banquets checks were of far greater importance at HK$408 per cover, 110% higher than the second highest check, Chinese restaurants. 3.7 Impact of government policies on the hotel industry The government has been working to make more hotel rooms available through various measures, including providing hotel only sites and encouraging the conversion of industrial properties into hotels. According to the 2013 Budget, the Land Sale Programme will include one hotel only site, providing 300 hotel rooms. By the end of May 2013, 17 applications for the redevelopment or wholesale conversion of industrial buildings into hotels were approved by the Lands Department. As industrial conversion into hotels involves many technical issues, such as plot ratios, facilities to be provided, circulation requirements, loading/unloading requirements, and so on, it is possible that the actual conversion of the 17 approved cases may take much longer than the government has anticipated. 3.8 Hotel market outlook The outlook for Hong Kong s hospitality industry over the next three years is positive, as a number of beneficial influences will continue to have an impact on the sector. Leisure travellers will be drawn to Hong Kong by the recently completed and ongoing extensions of both Disneyland and Ocean Park, as well as the first berth of the cruise ship terminal at Kai Tak which is due to open in The appeal of Hong Kong for mainland Chinese as China s most cosmopolitan and prosperous city is expected to endure, in particular for the more affluent and mature groups who now seek a more complete travel experience and are willing to spend more on hotels and sightseeing. Other factors, such as rising incomes, improving employment prospects, a more global perspective and more leisure time should also ensure a continuing flow of visitors from elsewhere in Asia. With Hong Kong s strengthening role in the Pearl River Delta, China s wealthiest and most advanced region, the number of business travellers is expected to increase. Hong Kong is increasingly becoming economically integrated with China and will continue to play an important role as a finance, logistics and business services hub. According to a recent HKTDC survey 22, Hong Kong was the most preferred Central Business District among ten Asian cities 23. Hong Kong s excellent geographical location, low risk (including, country, political, legal, etc), ease of doing business and a strong institutional structure, to name but a few, were all cited as key strengths. All of these positive attributes will continue to strengthen Hong Kong s position as a place for doing regional business and should therefore result in an increasing number of overnight business travellers Hong Kong as Asia s Central Business District, HKTDC Research, November The ten cities include Hong Kong, Singapore, Shanghai, Tokyo, Beijing, Guangzhou, Taipei, Seoul, Kuala Lumpur and Bangkok. Source: National Immigration Agency, Taiwan. IV-35

36 Hong Kong s current transport infrastructure projects will make cross-border travel easier as well as improve mobility within Hong Kong itself, while HKIA s proposed third runway could increase the airport s capacity to handle 620,000 flight movements per year, meeting projected demand up to and possibly beyond The project has been granted government approval in principle and the Airport Authority has adopted the three-runway system for planning purposes as a future development option. This is still at an early planning stage and it is anticipated that the entire project will take at least 11 years from planning to implementation, and thus there will be no short-term impact on the tourism industry. However, in Asia s competitive tourist market, threats do exist. Singapore has launched a number of new Integrated Resorts featuring casinos, and convention and exhibition facilities in order to attract leisure and business travellers. Other regions and countries have also put in place schemes similar to the IVS to attract mainland arrivals, one such example being Taiwan, which launched its scheme in June Up to January 2013, a total of 250,000 mainland visitors had visited Taiwan via the scheme 24. Nevertheless, the performance of the hotel market in the first five months of 2013 may indicate some temporary hold-back of travelling and accommodation budgets for both business and vacation travelers due to the uncertain business environment. Also, the higher level of supply (1,089 rooms completed in Q1/2013, 3,656 rooms to be completed over the remainder of 2013) may have made hotel operators more cautious in raising room rates. A couple of adverse events, such as the announcement of a possible slowdown of QE in the US, the stock market slump and the withdrawal of some IPOs from June onwards, tighter liquidity in China and a tightening of travel/entertainment budgets of the new Chinese regime may all have contributed to the more moderate performance in the first five months of the year. Nevertheless, given the short term nature of these adverse factors as well as gradually declining supply levels (2,525 and 741 rooms anticipated in 2014 and 2015 respectively), we believe that hotel performance will revive gradually from the second half of 2013 onwards. IV-36

37 3.8.1 Future supply Future supply by district Hotel supply by district, 2013E 2018E Southern District 3% Tsuen Wan District 6% Wan Chai District 21% Sha Tin District 5% Sham Shui Po District 1% Sai Kung District 0% Wong Tai Sin District 10% Kwun Tong District 3% Kwai Tsing District 9% Yau Tsim Mong District 16% Kowloon City District 3% Eastern District 13% Central & Western District 7% Island District 3% Source: HKTB, Savills Research & Consultancy Between 2013 and 2018, additional supply of 10,413 hotel rooms is expected to be released onto the market according to the HKTB. This supply is forecast to be concentrated in Wan Chai District, Yau Tsim Mong District and Eastern District with 2,187 hotel rooms, 1,608 rooms and 1,387 rooms respectively. IV-37

38 Major hotel supply above 100 rooms, 2013E 2018E Projects by year of completion District No. of rooms 2013E Discovery Bay Resort & Spa (opened)... Island 325 Courtyard Marriot (opened)... Sha Tin 539 Hotel Indigo Hong Kong Island (opened)... Wan Chai 138 Dorsett Regency, Hong Kong Tsuen Wan... Tsuen Wan 548 A proposed hotel at Pau Chung Street... Kowloon City 161 A proposed hotel at Austin Road... Yau Tsim Mong 155 The Kush Hotel... Central & Western 199 Pentahotel Hong Kong, Kowloon (opened)... Wong Tai Sin 695 China Grand Hotel... Central & Western 214 A proposed hotel at Bonham Strand... Central & Western 199 Ovolo Hotel-wong Chuk... Southern E A proposed hotel at Kwun Tong Road... Kwun Tong 200 A proposed hotel on Cheung Wing Road/Kwok Shui Road.. Kwai Tsing 380 A proposed hotel at Kwai Cheong Road... Kwai Tsing 596 A proposed hotel at Merlin Street... Eastern 351 Kong Link Hotel... Wan Chai 121 Austin Hotel... Yau Tsim Mong 100 A proposed hotel at 1 21 Dundas Street... Yau Tsim Mong E A proposed hotel at 373 Queen s Road East... Wan Chai E A proposed hotel at Low Block, 26 Harbour Road... Wan Chai E A proposed hotel at Oil Street, North Point... Eastern 840 A proposed hotel at TaiYau Street... Wong Tai Sin E Hopewell Centre II... Wan Chai 1,024 Total... 7,846 Source: HKTB, Savills Research & Consultancy There are 23 hotels in the pipeline with 100 rooms or above (three opened in Q1/2013), three of which will offer over 600 rooms, which we consider to be large-scale projects. The majority of future hotels, however, are relatively small in scale. IV-38

39 Future supply by segment While no official data for future hotel supply by segment is available, we have estimated the breakdown by taking into consideration the location, scale and possible future operators and offerings of the hotel supply pipeline to compile the table below. Only 1,379 out of the 10,163 hotel rooms (13.6%) to be completed over the next five years may fall into the High TariffA category, all of them located in core tourist areas. Potential High Tariff B and medium tariff hotel supply coming on stream represent 38.0% and 48.5% of future hotel completions from 2013 to 2018 respectively. Estimated hotel supply by segment, 2013E 2018E Hotel category No. of rooms High Tariff A... 1,379 High Tariff B... 3,858 Medium tariff... 5,176 Source: HKTB, Savills Research & Consultancy Another potential source of hotel supply is the revitalisation of industrial buildings; however, as of May 2013, there had been only five special waivers executed for industrial buildings to be converted into hotels, located in Kwun Tong, Kwai Chung and Wong Chuk Hang. The number of rooms provided by these projects has not yet been confirmed. As current hotel room provision in Kwun Tong only accounts for 8% of the total room stock, these two revitalisation projects will not have a significant impact on overall stock Forecast demand and occupancy rates by hotel segment Forecast demand In 2011, an average of 46,019 hotel rooms were occupied per day, resulting in 16.8 million paid room nights over the year as a whole. The average number of guests per room stood at 1.66 persons and the average length of stay at 3.60 nights. It can therefore be estimated that approximately 7.7 million visitors stayed in hotels during 2011, or 35% of all overnight visitors. IV-39

40 Using this methodology, adopting visitor arrival forecasts and making assumptions regarding the future ratio of hotel guests to overnight visitors, the average number of guests per room and average lengths of stay, it is possible to project future demand for hotel rooms. Demand and supply of hotel rooms, E (1) Total visitor arrivals (2) Overnight visitors (3) Average length of stay (4) Average no. of guests per room (5) Hotel rooms occupied (6) Estimated no. of hotel guests (7) Hotel guests as % of overnight guests (8) Total hotel rooms (9) Total no. of rooms available for sale per day (10) Occupancy rate ( 000 persons) ( 000 persons) (nights) ( 000 persons) (%) ,725 8, ,580 4, ,132 33, ,566 10, ,003 3, ,949 34, ,537 9, ,126 2, ,133 32, ,811 13, ,109 4, ,128 34, ,359 14, ,348 4, ,866 36, ,250 15, ,161 4, ,128 37, ,169 17, ,913 6, ,581 39, ,507 17, ,850 6, ,804 42, ,591 16, ,863 6, ,627 45, ,030 20, ,778 6, ,428 48, ,921 22, ,019 7, ,830 51, E... 48,615(a) 23,770(a) 3.50(a) ,045 8, ,394(a) 56,611 89(a) 2013E... 53,631 25, ,519 8, ,959 61, E... 59,164 28, ,143 9, ,484 65, E... 65,268 31, ,348 10, ,225 67, Note: Projected numbers in Italics, (a) means actual 2012 numbers Source: HKTB (where indicated below), Savills Research & Consultancy Key forecast assumptions The key assumptions used in preparing the above forecasts are as follows: (1) Total visitor arrivals We have forecast total visitor arrivals from 2013 to 2015 based on the long-term growth trend of 10.3% as detailed in section above. (2) Overnight visitors We have assumed that the number of overnight visitors will be a certain percentage of the number of total visitor arrivals. Although this percentage declined gradually from 60.9% in 2007 to 48.9% in 2012 and declined further to 47.0% in the first five months of 2013, we do not anticipate that this percentage will drop any further from 2013 to 2015 as one of the main reasons behind the decline has been the strong increase in Chinese same-day-in-town (i.e. day-trip only) visitors (from 6.4 million in 2007 to 19.8 million in 2012, a 210% increase, compared to a 125% increase in total Chinese arrivals over the same IV-40

41 period), driven in part by trips to purchase daily necessities such as baby milk powder and pharmaceutical products, and by trips for the purpose of parallel trading into China. With two new measures, namely a weight limit on passenger luggage of 23kg on six designated MTR East Rail Line stations (Lo Wu, Sheung Shui, Fanling, Lok Ma Chau, Tai Po Market and Fo Tan), as well as measures to combat cross-boundary parallel trading, we expect a significant decline of same-day-in-town Chinese visitors, and thus we have assumed that the number of overnight visitors as a percentage of total visitor arrivals will stabilize at 47.9% from 2013 to 2015 (simple arithmetic average of 48.9% and 47.0%). (3) Average length of stay We have assumed that the average length of stay from 2013 to 2015 is 3.6 nights, which is roughly the average figure between 2002 and 2012, as we have not found any significant rising or declining trends from 2002 to 2012 in this figure nor any reason to expect it to rise or decline significantly. This forecast figure is higher than the figure for the 2007 to 2009 period as this was during the global financial crisis when tourists generally spent a much shorter time in Hong Kong due to reduced travelling budgets, but it is commensurate with the changing travel patterns of mainland Chinese visitors, who have stayed considerably longer in more recent years (increasing from 3.6 nights in 2007 to 3.7 nights in 2012). (4) Average no. of guests per room We have assumed that the average number of guests per room is 1.61 from 2012 to 2015, the same as the average of the period between 2007 and 2011, as we have not found any significant rising or declining trends from 2001 to 2011 in this figure nor any reason to expect it to rise or decline significantly in the future. It is noteworthy that this figure fell from 1.61 in 1998 to 1.47 in 2006 but then rose to around 1.61 in the following five years. Use of this higher figure assumes that more visitors will be willing to share rooms in view of the expected tightening availability and higher accommodation costs. A higher number of average guests per room will also yield a more conservative occupancy projection. The assumed figure is not as high as the figure recorded in 2011 (1.66) since new hotel supply was extremely tight in 2011 (net increase of 2,402 hotel rooms), while there will be more hotel supply from 2012 to 2015 (net increase of 12,395 rooms over the period, or a 3,099 net increase of rooms per annum), slightly alleviating the tight supply situation. (5) Hotel rooms occupied Figures from 2001 to 2011 are provided by the HKTB, while projected figures from 2012 onwards are derived from the following calculation: (6) (4) (3) 365. (6) Estimated no. of hotel guests Figures from 2001 to 2011 are derived from the following calculation: (5) (4) (3) 365, while projected figures from 2012 onwards are derived from the following arithmetic relation: (2) (7), which differs from the formula used for 2001 to 2011 because (5) (hotel rooms occupied) is estimated based on, among other things, (3) (average length of stay) and (4) (average no. of guests per room), therefore, it would give rise to a circular reference, whereas for 2001 to 2011, (5) is based on HKTB data. (7) Hotel guests as % of overnight guests We have assumed that hotel guests will represent a certain percentage of overnight guests. We have assumed that 34.7% of overnight visitors will be hotel guests from 2012 to 2015, which was the figure for IV-41

42 2011, for the following reasons: (i) we have not found any significant rising or declining trends in this percentage from 2001 to 2011; (ii) we consider it reflects the changing travel and accommodation patterns of both short-haul and long-haul visitors, as well as those from China; and (iii) the percentage has fluctuated over the past five years and averaged 35.8% from 2007 to 2011, so in adopting a lower figure we have made a more conservative assumption. (8) Total hotel rooms Both historical (2001 to 2012) and forecast data (2013 to 2015) are provided by HKTB. (9) Total no. of rooms available for sale per day The total number of rooms available for sale per day equals total hotel rooms excluding those under repair or being refurnished. We have assumed that 84% of total hotel rooms will be available for sale per day in This is based on the percentage in 2011 (82%), and we have assumed that this ratio will rise gradually from 2013 to 2015 based on trend growth from 2007 to 2011, as the continuing tightening supply situation over the next few years is likely to prompt existing owners to delay major renovations or minor and non-emergency repair works, and thus rooms available for sale per day should gradually increase. (10) Occupancy rate Historical occupancy rates (2001 to 2012) are provided by HKTB. Our forecast occupancy rate (2013 to 2015) is based on rooms occupied against rooms available for sale per day, i.e. (5) (9). However, when applied to generate longer term occupancy forecasts for 2015 by adopting longer term visitor arrival forecasts, the resulting projected occupancy rate of 98% in 2015 appears unrealistic. This exceptional forecast result, nevertheless, implies that longer term supply of new rooms in 2015 known today will fall short of future demand. Under this scenario, operators of existing hotels may delay room renovation work so as to fully utilise their stock on hand. In view of the tight availability situation, developers and investors will be encouraged to either speed up their current hotel development plans (if any) or initiate more hotel development projects. For analysis purposes, we assume the occupancy rate in 2015 to be 95%, similar to the projected level for 2014, representing effectively full capacity. Based on Savills forecasts of visitor arrivals (based on long-term trend growth), and the assumptions on overnight visitors and hotel guests as a percentage of the number of overnight visitors listed above, projections of the estimated number of hotel guests are made. For example, hotel guests are expected to reach approximately 8.3 million in With this projected number of hotel guests and the assumptions on average length of stay and average number of guests per room, the number of rooms occupied is projected as approximately 50,446 rooms occupied by the expected 8.3 million hotel guests daily Forecast occupancy rates The occupancy rate in 2012 is estimated to be 87%, slightly more conservative than the actual 2012 levels, based on the projected number of rooms occupied of 49,045 and the projected number of rooms available for sale per day of 56,611. When applied to forecast occupancy rates in 2013 and 2014, this results in projected occupancy rates of 88% and 92% respectively. By referencing the historical relationship, from 1997 to 2012, between occupancy rates of hotel classes and the overall market, projections of occupancy rate by hotel class can still be made, although future new supply cannot be broken down by class. IV-42

43 Summary of average occupancy rate projections, 2013E 2015E Year All hotels High Tariff A High Tariff B (%) (%) (%) 2013E E E Source: Savills Research & Consultancy Forecast average room rates and RevPAR by hotel segment Forecast average room rates External shocks can have a significant impact on hotel room demand, affecting hotel occupancy and average room rates. Recent negative events have included the global financial crisis in 2008 and 2009, and the euro debt crisis of 2011, while a more positive impact was observed as a result of the relaxation of travel restrictions on mainland Chinese from 2003, as well as the increasing popularity of Hong Kong as a fund-raising hub for IPOs from 2004, which has resulted in rising occupancy and room rates. Looking ahead, we believe that hotel room demand is well supported by growing numbers of increasingly affluent mainland Chinese, long-haul visitors and high-spending business travellers, barring any unforeseen shocks. We do not expect future hotel room supply to meet projected demand over the next three years, based on current known hotel developments in the pipeline. There is a high positive correlation between average room rate movements and occupancy rates and the number of hotel rooms occupied over the period between 1997 and The average room rate is projected to rise by between 6.6% and 9.6% from 2013 to 2015, assuming this relationship holds in future. Based on this model, by 2015 the average room rate will stand at HK$1,861, 51% above 1997 peak levels. The core demand base for high tariff hotels are the high-spending business travellers and long-haul tourists, who are less price sensitive, as well as wealthier mainland Chinese. We can derive the projected room rates for different hotel categories from 2013 to 2015, by looking at the historical relationship between overall room rates and room rates of different categories. Summary of average room rate projections by hotel segment, 2013E 2015E Year All hotels High Tariff A High Tariff B (%) (%) (%) 2013E E E* Source: Savills Research & Consultancy * Long-term historical growth rate ( ) of average room rates for all hotels, High Tariff A and High Tariff B hotels are 4.4% per annum, 4.6% per annum and 5.0% per annum, respectively. The 2015 forecast has made reference to these figures, as well as number of hotel rooms occupied and High Tariff A occupancy rate forecast of IV-43

44 In 2013, short-term demand from financial executives for High Tariff A rooms may slow further; with some of the slack to be taken-up by affluent mainland Chinese, as well as international retailers and multinationals utilising Hong Kong as a springboard into mainland China. High Tariff B hotels are expected to continue to benefit from the anticipated strong growth of mainland Chinese visitors, as well as from their more diversified guest profile to take advantage of both overseas and mainland Chinese business travellers on mid-range budgets, although both categories are facing tightening budgets Forecast RevPAR From 2013 to 2015, we forecast RevPAR of all hotels to increase by anaagr of 10.1% per annum, with RevPAR of all three hotel categories projected to increase at similar rates. The projected RevPAR growth rates are at similar levels to the ten-year historical average (2003 to 2012). When compared with historical figures, these projected growth rates are not particularly high. RevPAR of all hotels in 12 of the past 20 years (1993 to 2012) has increased, while external shocks have caused some falls in RevPAR in the remaining eight years. RevPAR could be affected by future exogenous factors such as global financial shocks, a new SARS type outbreak, terrorist attacks or similar events which would have a direct impact on Hong Kong s hospitality sector. However, the probability, timing and impact of such events are impossible to measure with any certainty. RevPAR growth rate summary by hotel segment, E All hotels High Tariff A High Tariff B 10-year ( ) historical average (% per annum) Projected average annual growth rates, E (% per annum) Source: HKTB, Savills Research & Consultancy In absolute terms, by the end of 2012, RevPAR of all hotels had already surpassed the peak level recorded in 1996, while RevPAR of all hotels by 2016 is forecast to be 65% higher than in 1996, based on the assumption of 95% occupancy rates in In 2015, RevPAR of High Tariff A and High Tariff B hotels is expected to exceed respective 1996 peak levels by 99% and 36% respectively. The above projections are broad industry averages and the performance of individual hotels will deviate from the mean due to specific micro-market factors and operating strategies. Hotels faced with competition in their surrounding areas, offering superior amenities or in close proximity to improved infrastructure are therefore expected to outperform the market as a whole. IV-44

45 4.0 WAN CHAI/CAUSEWAY BAY HOTEL PROPERTIES 4.1 Property description Grand Hyatt Hong Kong Grand Hyatt Hong Kong is classified as a High Tariff A hotel by HKTB. Grand Hyatt Hong Kong is located in a prime area of Wan Chai District, a traditional retail and commercial hub on Hong Kong Island, closely connected with Central. Wan Chai is a highly accessible area, with many public transportation networks, including MTR, trams, ferries, buses and minibuses. The Grand Hyatt Hong Kong has access to Hong Kong s extensive rail network via Wan Chai MTR Station, and is one station away from Causeway Bay MTR Station, which is a well-established retail, entertainment and commercial centre. Located on top of the Hong Kong Convention and Exhibition Centre complex, Grand Hyatt Hong Kong has direct access to this popular exhibition and convention venue. Grand Hyatt Hong Kong opened in 1989 and has a total gross floor area ( GFA 25 ) of approximately 541,000 sq.ft. The hotel comprises 549 wood-panelled rooms and suites, 60% of which enjoy views of the harbour, while the rest of the rooms overlook the hotel s terrace garden. There are eight restaurants and bars at Grand Hyatt Hong Kong including One Harbour Road, Grissini, Kaetsu, Grand Hyatt Steakhouse, Tiffin, Grand Cafe, The Grill and the Waterfall Bar, and Champagne Bar. Facilities at Grand Hyatt Hong Kong include 24 highly flexible event venues, such as the newly launched The Residence and the Grand Ballroom, which can accommodate up to 950 people in a theatre-style setting. Grand Hyatt Hong Kong also provides a range of recreational facilities including the Plateau Spa, a 50-m heated outdoor swimming pool (shared with Renaissance Harbour View Hotel), a sauna, 24-hour fitness studios, a 400-m jogging track, tennis courts, squash courts, a golf driving range and a large children s playground. The Plateau Spa is located on the 11 th floor and provides an extensive range of award-winning and results-oriented spa treatments in luxurious private rooms with en-suite bathrooms. The Plateau Spa received Asia Spa & Wellness Festival s 2009 Gold Award. Grand Hyatt Hong Kong has won many internationally recognised awards since opening, including: Best Hotel Events Team by CEI Asia Pacific Industry Survey Readers Choice in 2013; Third Best Hotel for Business Events by CEI Asia Pacific Industry Survey Readers Choice in 2013; 25 GFA is the area contained within the external walls of the building measured at each floor level, including any floor below the level of the ground, and excluding any floor space which the Building Authority is satisfied was constructed or intended to be used solely for parking motor vehicles, the loading or unloading of motor vehicles or occupied solely by machinery or equipment for any lift, air-conditioning or heating systems or any similar service. IV-45

46 Best Meetings & Conventions Hotel in Hong Kong by TTG China Travel Awards in 2012; World s Best Hotels by Institutional Investor in 2011; Third Best Conference Hotel by Smart Travel Asia in 2011; Top 25 Hotels in Hong Kong/Macau/Taiwan by TripAdvisor Travelers Choice in 2011; Best Choice of Business Hotel by National Geographic Traveler China, Gold List in 2010; and Best MICE Hotel in Hong Kong by CEI Asia Industry Awards in Renaissance Hong Kong Harbour View Hotel Renaissance Harbour View Hotel is classified as a High Tariff A hotel by HKTB. The Renaissance Hong Kong Harbour View Hotel is situated on the harbourfront of northern Wan Chai, on top of the Hong Kong Convention and Exhibition Centre complex, therefore giving the hotel an advantage with business travellers and MICE participants during event seasons. Renaissance Harbour View Hotel can be accessed via public transportation including MTR, taxis, minibuses and buses. The proximity of Wan Chai, as a well-established commercial and exhibition centre, enhances Renaissance Harbour View Hotel s attractiveness to hotel guests. Renaissance Harbour View Hotel opened in 1989, has a total GFA of approximately 561,000 sq.ft., and comprises 857 guest rooms and suites. The hotel has a modern and stylish design, and guest rooms enjoy panoramic views of Victoria Harbour. There are four restaurants and bars at Renaissance Harbour View Hotel, including Dynasty Restaurant, Cafe Renaissance, Scala Restaurant and The Lounge, offering Chinese and western cuisines. Dynasty Restaurant was awarded one Michelin Star in At Renaissance Harbour View Hotel, there is a total of 13 meeting rooms providing approximately 14,994 sq.ft. of meeting space. The largest meeting room is the joint Concord Room and Oasis Room, which together provide a maximum meeting space of 10,387 sq.ft. and a maximum seating capacity of 950 people. Facilities include the Dynasty Club and an outdoor swimming pool (shared with Grand Hyatt Hong Kong). IV-46

47 4.2 Location analysis, including recent district developments and trends Tourist attraction Office Convention centre Main road Upcoming projects Grand Hyatt Hong Kong Extent of reclamation under Wan Chai Development Phase II 8 9 Renaissance Harbour View Hotel No Development 1 New Government HQ 2 Convention Plaza 3 Great Eagle Centre 4 Harbour Centre 5 Sun Hung Kai Centre 6 China Resources Building 7 Central Plaza 8 Hong Kong Convention and Exhibition Centre 9 Golden Bauhinia Square 10 Exhibition Station 11 Future Wanchai Ferry Pier 12 Waterfront Promenade 13 Central/Wanchai Bypass 14 Gloucester Road Source: Savills Research & Consultancy Wan Chai is known as a key area for business, conventions and exhibitions, entertainment and shopping, as well as art and cultural activities. The district also serves as a traffic hub and an interchange for east and west Hong Kong Island. Immediately to the east of Wan Chai are Causeway Bay, Happy Valley and North Point/Quarry Bay, while Admiralty, Central and Sheung Wan are all situated to the west of the district. The area is served by the MTR, trams, ferries, buses and minibuses which employees and residents use to commute to and from the district on a daily basis. Wan Chai s office stock totalled around 19.6 million sq.ft. at the end of 2012, 10.0 million sq.ft. and 6.3 million sq.ft. of which are classified as Grade A and Grade B respectively. Due to its convenient location and the availability of high-quality Grade A offices at affordable rents, the area is home to several major multinational tenants such as AXA, Mass Mutual, Procter & Gamble, Dow Jones Newswires, ExxonMobil and the Walt Disney Company. A number of major developers, such as Sun Hung Kai Properties and China Resources are also headquartered in the area. Street shops are the key retail format in Wan Chai, as the area lacks enclosed shopping centres (except for a few retail podiums in commercial buildings operated in a centre format). Gloucester Road separates the two main areas of Wan Chai north and south. A cluster of office developments, both private and public, is located in north Wan Chai, including Central Plaza, Sun Hung Kai Centre and Shui On Centre, as well as the Hong Kong Convention and Exhibition Centre, which is the premier exhibition and convention facility in Hong Kong. South Wan Chai, on the other hand, comprises a mixture of Grade A offices, traditional residential buildings and street retail, but the area is in the process of revitalisation, with numerous Urban Renewal Authority ( URA ) projects underway. In November 1988, the Hong Kong Convention and Exhibition Centre opened, and due to the demand for exhibition space, commenced its second expansion project in May 2006, which was completed in April Linked to Grand Hyatt Hong Kong and Renaissance Harbour View Hotel via covered walkways, the Hong Kong Convention and Exhibition Centre is located on the Victoria Harbour waterfront, accessible by most major means of transportation, including buses, ferries and the MTR. IV-47

48 The Hong Kong Convention and Exhibition Centre which is owned by the HKTDC and Hong Kong government and is managed and operated by the Hong Kong Convention and Exhibition Centre (Management) Limited, a wholly-owned subsidiary of NWS Holdings Limited has a total gross area of 3,293,784 sq.ft. with total rentable space of 984,906 sq.ft.. The venue currently provides 710,424 sq.ft. of purpose-built exhibition space, 215,280 sq.ft. of multi-functional space and 59,202 sq.ft. of event support space. Regarded as one of the most efficient and functional meeting and exhibition centres in the region, the Hong Kong Convention and Exhibition Centre hosts more than 50 regional and international trade fairs each year, including the world s largest jewellery fair, electronics fair, timepiece event and gift fair. The regular international fairs/events for house wares, lighting, wine and spirits, beauty and leather products, and fashion are the largest in Asia. The Hong Kong Convention and Exhibition Centre hosted 1,224 events with over 5.6 million participants (both local and international) during the full year ending in June Serving as the venue for Hong Kong s handover ceremony in 1997, the sheer size of the Hong Kong Convention and Exhibition Centre means it is often the first choice for many large conference organisers. The facilities available at the Hong Kong Convention and Exhibition Centre, such as the advanced simultaneous interpretation system, state-of-the-art lighting and the provision of stage rigging, support the hosting of international conferences. The venue has hosted many important international meetings, including Sibos 2009, the World Ophthalmology Congress 2008, the WTO Hong Kong Ministerial Conference 2005, the 88th Lions Clubs International Convention 2005 and the IMF World Bank Conference Major exhibition events at the Hong Kong Convention and Exhibition Centre in 2013 Event name Organiser HKTDC Hong Kong Toys & Games Fair January Hong Kong International Stationery Fair January HKTDC Hong Kong Baby Products Fair January Education UK Exhibition 2013 January th Valentine s Wedding Service & Banquet Expo February Baby Expo in Spring & Child Growth Education February Hong Kong International Fur & Fashion Fair February HKTDC Hong Kong International Jewellery Show March HKTDC HKTDC HKTDC British Council Hongkong Asia Exhibition (Holdings) Ltd Eugene Group Limited Hong Kong Fur Federation HKTDC Source: Hong Kong Convention and Exhibition Centre IV-48

49 Extension and conversion plans have been approved by the Buildings Department for both the Grand Hyatt Hong Kong (549 rooms) and Renaissance Harbour View Hotel (857 rooms). This will add another 94,322 sq.ft. of hotel space to meet the increasing demand for accommodation. Additionally, the HKTDC has proposed to the government a third phase of expansion for the Hong Kong Convention and Exhibition Centre, but this is still in the planning stage. A number of refurbishment projects are underway within the vicinity: the China Resources Building complex is undergoing refurbishment, which comprises a renovation of the office tower and retail podium (the high block of China Resources Building) and the development of an 18-storey six-star hotel with 120 rooms located in the low block of China Resources Building. The refurbishment is currently 90% complete and is expected to be fully completed in mid-2013, while the new hotel is expected to open in Other commercial developments include a refurbishment project at 8 Queen s Road East (formerly Sincere Insurance Building). This space has already been taken-up by a well-known insurance firm, which will relocate from Causeway Bay upon completion of the building this year. Wan Chai, and in particular southern Wan Chai, is undergoing rapid redevelopment, mainly of the many older residential buildings. With government support, the URA, in partnership with major developers, has a number of successful projects in the district, including The Zenith, a 904- residential- unit development by Chinese Estates completed in 2006; J Residence, a 381-residential-unit development by K.Wah; and more recently Queen s Cube by Nan Fung. 200 Queen s Road East, another large-scale URA project, will provide a total of 1,299 residential units with a total GFA of 835,000 sq.ft. for residential and commercial use, together with public open space and a residential care home for the elderly. The project will also feature a cluster of themed shops catering for weddings and a culture gallery in three conserved historical buildings on Lee Tung Street. Completion is anticipated in 2015 by developers Sino Land and Hopewell Holdings. The accessibility of the area is due to be enhanced with the addition of further transport infrastructure: The construction of a Central Wan Chai Bypass will alleviate the heavy volumes of traffic in Wan Chai. This is a 4.5-km dual, three-lane trunk road connecting Central with Wan Chai across the north shore of Hong Kong Island, which will connect to the Eastern Corridor via the Island East Corridor Link upon completion in The MTR has proposed the 17-km SCL with a station near the Hong Kong Convention and Exhibition Centre, connecting the existing Tai Wai MTR Station in Sha Tin with Admiralty MTR Station. Construction of the line started in 2010, with the first phase from Tai Wai to Hung Hom expected to be completed in 2018 and the cross-harbour section to be in operation by IV-49

50 The future Exhibition MTR Station will be located underground with two exits above ground; one near the existing taxi stand at the Wan Chai North Public Transport Interchange, and another at the existing Harbour Road Sports Centre. The proposed North Island Line, which is still under planning with no confirmed date of completion, will connect with Island East and Central via Wan Chai and Admiralty. The proposed Exhibition MTR Station for both the SCL and the North Island Line will be located to the north of Great Eagle Centre and Harbour Centre with entrances at the current public transportation hub. Properties in the area will benefit from these two MTR lines upon completion. Other infrastructure projects within the vicinity include: A world-class waterfront promenade in Wan Chai North (expected to be completed in 2017): This new harbourfront enhancement programme will be part of a green belt of about 4 km along the north shoreline of Hong Kong Island, together with two promenades being developed as part of the Central and North Point waterfront. A new Wan Chai ferry pier and government helipad project (expected to be completed in 2017): The existing Wan Chai East and West ferry piers will be replaced with a newly designed Wan Chai ferry pier on the future Wan Chai waterfront. The temporary helipad at the former Wan Chai Public Cargo Working Area will be upgraded to a permanent government helipad located next to the Hong Kong Convention and Exhibition Centre. IV-50

51 4.3 Analysis of historical hotel stock and supply Wan Chai There were 22 hotels located in the Wan Chai area in 2012, comprising approximately 5,633 rooms, or 8.4% of the territory s total, according to HKTB. Hotel stock in Wan Chai, ,000 No. of Rooms 5,000 4,000 3,000 2,000 1, Source: HKTB, Home Affairs Department, Savills Research & Consultancy Hotel development in Wan Chai started in the 1970s with the opening of Metropark Hotel Wan Chai Hong Kong (173 rooms, 1970). Hotel stock levels then remained below 1,000 rooms over the early 1980s until the supply boom, which started in Over the next six years, several large-scale hotels were completed, including The Grand Hyatt (549 rooms, 1989), Renaissance Harbour View Hotel (857 rooms, 1989) and Novotel Century Hong Kong (510 rooms, 1991), and the number of hotel rooms had increased to around 4,200 by Hotel stock levels remained the same for nearly a decade until 2005, when seven hotels were completed (1,051 rooms in total) from 2005 to Hotel stock increased by a further 300 rooms in 2011 when BestWestern Hotel (258 rooms) and The Vela Hong Kong Causeway Bay (33 rooms) opened. The opening of Mingle Place: With the Star adds another 28 rooms to Wan Chai Stock in In Q1/2013, Hotel Indigo Hong Kong Island (138 rooms) was completed. IV-51

52 Market share of the luxury hotel segment in Hong Kong, Q1/2013 Unclassified 7% Non-luxury 29% Luxury 64% Source: HKTB, Savills Research & Consultancy High Tariff A and B hotels are classified as luxury hotels. According to the definition, in Q1/2013, 64% of the hotel rooms in Hong Kong were classified as luxury, while 29% of the rooms were non-luxury and 7% of rooms were unclassified. Among the classified hotel stock, the ratio of luxury hotel rooms to non-luxury hotel rooms is as high as 2.3 to 1. Market share of the luxury hotel segment in Wan Chai, Q1/2013 Unclassified 26% Luxury 55% Non-luxury 19% Source: HKTB, Savills Research & Consultancy In Wan Chai, 55% of hotel rooms were luxury hotel rooms, while only 19% of the rooms were non-luxury and 26% were unclassified. IV-52

53 4.4 Forecast hotel supply, future developments, conversions and refurbishments Future hotel supply in Wan Chai, 2013E 2017E Development No. of rooms Expected completion Hotel Indigo, Queen s Road East, Wan Chai (opened) Q1/ Jaffe Road, Wan Chai Q2/2013 Brighton Hotel, 128 Lockhart Road, Wan Chai Mid-2013 Kong Link Hotel, Morrison Hill Road, Wan Chai Q3/ Queen s Road East, Wan Chai Q3/2015 Low Block, 26 Harbour Road, Wan Chai Q2/2016 Total Source: HKTB, Savills Research & Consultancy There are six scheduled hotel developments in Wan Chai from 2013 to 2017 providing 839 rooms, three of which are expected to be completed in 2013, namely 388 Jaffe Road (91 rooms), Hotel Indigo (138 rooms, opened in Q1/2013) and Brighton Hotel (70 rooms). The largest future supply is a proposed hotel at 373 Queen s Road East, which will provide 299 rooms when completed in Q3/2015. Beyond 2017, there is one large-scale hotel project, Hopewell Centre II, a conference-hotel, and commercial and recreation complex with a GFA of around 1.1 million sq.ft., scheduled for completion in The conference-hotel will add 1,024 hotel rooms to the market. 4.5 Historical performance Given that the location is a major retail, MICE and business area, hotel guests staying in Wan Chai/Causeway Bay are mainly tourists and business travellers from overseas and mainland China. Tourists with high budgets will stay at High TariffA hotels, as will business travellers who work in Hong Kong for a short period of time or come to attend conferences and meetings. IV-53

54 Average occupancy rates of Wan Chai/Causeway Bay and overall hotels, Jan 2002 May 2013 % 120 Overall Wanchai/Causeway Bay J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A Source: HKTB, Savills Research & Consultancy Average occupancy rates by year, & Jan May Jan May 2013 (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) Overall Wan Chai/Causeway Bay Source: HKTB, Savills Research & Consultancy Hotel occupancy rates in Wan Chai/Causeway Bay averaged 85% from January 2007 to May 2013, moving closely with the overall market over the past six years. IV-54

55 4.5.1 Grand Hyatt Hong Kong In 2011, Grand Hyatt Hong Kong s F&B revenue was higher than the room revenue, given the large number of restaurants and bars used by both hotel guests and local visitors. Overall High Tariff A hotel revenue from rooms, F&B and other services in 2011 stood at 55.8%, 36.8% and 7.5% respectively. Grand Hyatt Hong Kong s room revenue share is lower than that of the overall market, as a higher percentage of Grand Hyatt Hong Kong s revenue is accountable by the F&B sector, which outperforms the High Tariff A market. Grand Hyatt Hong Kong targets high-budget business visitors, MICE groups and higher spending leisure travellers. As Grand Hyatt Hong Kong operates at the high end of the market it is essential to benchmark its performance with other top hotels. Grand Hyatt Hong Kong has selected JW Marriott Hotel Hong Kong, Island Shangri-La, Mandarin Oriental Hong Kong and Conrad Hong Kong as its competitive set, which are all luxury hotels located on Hong Kong Island Renaissance Harbour View Hotel In 2011, room revenue at Renaissance Harbour View Hotel was higher than the High Tariff A hotel average, while revenue from the F&B department was slightly lower than the High Tariff A hotel average, given that the nearby Grand Hyatt Hong Kong has very strong F&B offerings. Renaissance Harbour View Hotel has a diversified guest profile ranging from mass-market to high-end customers, including leisure and business customers and MICE groups. As Renaissance Harbour View Hotel focuses on the high-end business segment of the market it is essential to benchmark its performance with similar hotels. Renaissance Harbour View Hotel has selected Regal Hong Kong, Novotel Century Hong Kong, The Excelsior Hong Kong and Park Lane Hong Kong Hotel as its competitive set, which are all high-end business hotels in Wan Chai and Causeway Bay. IV-55

56 4.6 Competition analysis and positioning Competitive advantages of Grand Hyatt Hong Kong and Renaissance Harbour View Hotel The luxury hotel market inwan Chai/Causeway Bay is robust as it is a key combination business and retail hub in Hong Kong. Demand from business travellers is strong in the district with occupancy rates standing at over 87% in The distinctive location of Grand Hyatt Hong Kong and Renaissance Harbour View Hotel, situated next to the Hong Kong Convention and Exhibition Centre as well as a cluster of high-quality offices in Wan Chai north, enable these two hotels to capture the majority of business travellers and MICE visitors. Within the luxury hotel sector, Grand Hyatt Hong Kong and Renaissance Harbour View Hotel do not face direct competition in the Wan Chai area as they are the only two luxury hotels situated on the Wan Chai harbourfront Grand Hyatt Hong Kong Grand Hyatt Hong Kong is directly connected with the Hong Kong Convention and Exhibition Centre making it the first choice for business travellers and MICE participants during event seasons. Grand Hyatt Hong Kong is also an iconic hotel in Hong Kong and is favoured by a number of country leaders (including former presidents of China, Jian Zemin and Hu Jintao, and former U.S. President Bill Clinton), heads of multinational companies (Bill Gates of Microsoft) as well as celebrities (David Beckham). The hotel, through its highly reputable brand name, attracts many high-budget Asian and long-haul visitors. Senior executives with high budgets who come to Hong Kong on business or for MICE events prefer to stay at Grand Hyatt Hong Kong. Grand Hyatt Hong Kong offers elegantly designed hotel rooms and suites, while floor to ceiling windows allow hotel guests to enjoy panoramic views of the harbour. With the oldest rooms among the competitors (the previous room renovation was completed in 1999), Grand Hyatt Hong Kong is currently undertaking a comprehensive room renovation project. The renovation began in January 2013 and will be carried out in phases until Grand Club guests enjoy complimentary in-room Internet and access to the Grand Club lounge, which serves a continental buffet breakfast, all-day coffee, tea and snacks, evening cocktails and canapés. IV-56

57 The strong F&B facilities at Grand Hyatt Hong Kong, eight restaurants and bars in total, provide a variety of cuisines for hotel guests as well as local visitors. There is also an ongoing renovation of the F&B facilities at Grand Hyatt Hong Kong, including the newly renovated Grand Hyatt Steakhouse. The upcoming refurbishment programme includes the conversion of a large private room into a Teppanyaki Table room in the Japanese restaurant, while a high-level renovation of Grissini is in the pipeline. The Plateau Spa, located on the 11 th floor of Grand Hyatt Hong Kong, offers award-winning spa treatments, a unique selling point in the northern Wan Chai luxury hotel sector. Grand Hyatt Hong Kong provides well-equipped and spacious banqueting and conferencing facilities. There are 24 flexible event venues which are ideal for private meetings, including the Grand Ballroom with a capacity of up to 1,200 people. The full banqueting and conferencing facilities give Grand Hyatt Hong Kong a distinct advantage in attracting multinational corporate clients holding company events, meetings and functions. The Grand Ballroom and Saloons are also expected to undergo major renovations in 2013 and 2014 respectively Renaissance Harbour View Hotel Renaissance Harbour View Hotel offers well-appointed accommodation to a diversified guest profile, including both long- and short-haul business travellers who are prepared to pay mid to high room rates. MICE executives who come to Hong Kong with smaller budgets and like to stay in luxury hotels prefer Renaissance Harbour View Hotel. Hotel rooms at Renaissance Harbour View Hotel enjoy harbour views through floor to ceiling windows. Club Level guest rooms offer upgraded amenities and access to the exclusive Club Lounge. There are a total of 13 meeting rooms at Renaissance Harbour View Hotel, providing a total of 14,994 sq.ft. By combining the Concord and Oasis rooms, meeting space of around 10,387 sq.ft. is provided with a maximum seating capacity of 950 people and panoramic harbour views. The banqueting business is particularly strong at Renaissance Harbour View Hotel, especially wedding banquets and company events. The relatively affordable room rate compared with Grand Hyatt Hong Kong resulted in the Renaissance Harbour View Hotel recording a similar occupancy rate of 70% in 2012, albeit during comprehensive renovations. The last phase of room renovations to be completed at Renaissance Harbour View Hotel is expected to push occupancy rates higher in The upcoming major renovation of Dynasty should boost its F&B offering after completion, while the conversion of Scala into gym facilities will give Renaissance Harbour View Hotel its own exclusive gym facilities which should enhance its image. IV-57

58 4.6.2 Competition analysis Within the luxury hotel sector, Grand Hyatt Hong Kong and Renaissance Harbour View Hotel do not face direct competition in the northern Wan Chai area. However, other luxury hotels located outside of Wan Chai may serve as competition to the subject hotels. We have identified four comparables to Grand Hyatt Hong Kong, namely JW Marriott Hotel Hong Kong, Island Shangri-La and Conrad Hong Kong, all located in Admiralty as well as Mandarin Oriental Hong Kong located in Central Grand Hyatt Hong Kong Grand Hyatt Hong Kong Address... 1 Harbour Road Year of completion No. of rooms No. of restaurants and bars... 8 Facilities... Business centre, spa and swimming pool Source: Savills Research & Consultancy The three comparables in Admiralty are located in Pacific Place, while the Mandarin Oriental Hong Kong is located in Central next to the Hongkong Land office portfolio. All are similar in scale to Grand Hyatt Hong Kong. Demand for the comparable hotels is mainly driven by business travellers working in the Central and Admiralty areas and hence, there is no direct competition with Grand Hyatt Hong Kong. However, there may be the possibility of some MICE visitors who prefer Grand Hyatt Hong Kong staying in these four comparables if Grand Hyatt Hong Kong is fully booked during peak seasons. JW Marriott Hotel Hong Kong Address... Pacific Place, 88 Queensway Year of completion No. of rooms No. of restaurants and bars... 9 Facilities... Health club, swimming pool and spa Source: Savills Research & Consultancy Island Shangri-La Address... Pacific Place, Supreme Court Road Year of completion No. of rooms No. of restaurants and bars... 8 Facilities... Health club, swimming pool, solarium and massage treatments Source: Savills Research & Consultancy IV-58

59 Conrad Hong Kong Address... Pacific Place, 88 Queensway Year of completion No. of rooms No. of restaurants and bars... 6 Facilities... Business centre, fitness centre, outdoor pool Source: Savills Research & Consultancy Mandarin Oriental Hong Kong Address... 5 Connaught Road Central Year of completion No. of rooms No. of restaurants and bars... 9 Facilities... Spa, fitness centre, boardrooms and conference facilities Source: Savills Research & Consultancy Renaissance Harbour View Hotel For Renaissance Harbour View Hotel, we have identified four comparable hotels in Wan Chai/Causeway Bay, namely Novotel Century Hong Kong in Wan Chai, and Regal Hong Kong, The Excelsior Hotel and The Park Lane Hotel, all located in Causeway Bay, one of the prime shopping areas of Hong Kong. Renaissance Harbour View Hotel Address... 1 Harbour Road Year of completion No. of rooms No. of restaurants and bars... 4 Facilities... Dynasty Club and swimming pool Source: Savills Research & Consultancy Novotel Century Hong Kong is located in close proximity with Renaissance Harbour View Hotel, but as it has a smaller scale in terms of number of rooms and does not share the same locational advantage of being next to the Hong Kong Convention and Exhibition Centre, it does not constitute direct competition. IV-59

60 Novotel Century Hong Kong Address Jaffe Road Year of completion No. of rooms No. of restaurants and bars... 3 Facilities... Gym, swimming pool, conference and meeting facilities Source: Savills Research & Consultancy The Excelsior Hotel and The Park Lane Hong Kong have a similar number of rooms to Renaissance Harbour View Hotel, while Regal Hong Kong is smaller in scale. As these three comparables are located in Causeway Bay, there is no direct competition with Renaissance Harbour View Hotel. The main demand driver of the three comparables is tourists and business travellers visiting Causeway Bay. Some MICE visitors who could opt for Renaissance Harbour View Hotel, but prefer to do some shopping during their stay in Hong Kong may choose hotels located closer to the shopping area, such as these three comparables. Regal Hong Kong Address... 88Yee Wo Street Year of completion No. of rooms No. of restaurants and bars... 4 Facilities... Gym and swimming pool Source: Savills Research & Consultancy The Excelsior Hotel Address Gloucester Road Year of completion No. of rooms No. of restaurants and bars... 6 Facilities... Fitness centre, steam rooms, and massage and beauty treatments Source: Savills Research & Consultancy IV-60

61 The Park Lane Hong Kong Address Gloucester Road Year of completion No. of rooms No. of restaurants and bars... 3 Facilities... Fitness centre Source: Savills Research & Consultancy The expansion in Wan Chai s office supply and the year-round events at the Hong Kong Convention and Exhibition Centre will provide stable demand for luxury hotels from business travellers. Large-scale luxury hotels are very limited in the Wan Chai/Causeway Bay area. Upcoming supply is mainly in the form of smaller scale projects, until the completion of Hopewell Centre II in However, as Hopewell Centre II is located in southernwan Chai and the hotel is expected to be run by the developer instead of an international brand operator, only a very small amount of competition is anticipated. 4.7 Market outlook Grand Hyatt Hong Kong and Renaissance Harbour View Hotel are strategically located in a traditional tourist node and core business district, served by comprehensive transportation and road networks, while having the Hong Kong Convention and Exhibition Centre as a neighbour provides a strong fundamental demand for hotel rooms. The strong performance in visitor arrivals and the growing MICE market are expected to continue supporting business at Grand Hyatt Hong Kong and Renaissance Harbour View Hotel. According to HKTB, there will be a total of 839 hotel rooms completed between 2013 and 2017, all of them small-scale projects which are not expected to create competition with Grand Hyatt Hong Kong and Renaissance Harbour View Hotel. In 2018, the completion of Hopewell Centre II, providing 1,024 rooms and conference facilities, is expected to have a minimal impact on the high-end luxury segment in northern Wan Chai given its location in southern Wan Chai. Grand Hyatt Hong Kong and Renaissance Harbour View Hotel are expected to face no competition in the next three years in the high-end luxury segment in the Wan Chai area, as both hotels offer ample amenities including meeting rooms, F&B offerings and recreational facilities, and have been recently renovated to maintain their competitiveness. IV-61

62 4.7.1 Forecasts on the competitive set of Grand Hyatt Hong Kong The historical performance of the competitive set (i.e. JW Marriott Hotel Hong Kong, Island Shangri-La, Mandarin Oriental Hong Kong and Conrad Hong Kong) fared reasonably well compared with overall High Tariff A hotels, with average room rate and occupancy rate movements over the past five years tracking the market (R 2 equals 88% and 91% respectively). Based on this historical relationship, the average room rate growth, occupancy rate and RevPAR growth projections of the Grand Hyatt Hong Kong competitive set are as follows: Average room rate growth, occupancy rate and RevPAR growth projections for the competitive set, 2013E 2015E and long-term forecast Year Occupancy rates Average room rate growth RevPAR growth (%) (%) (%) 2013E E E Long-term forecast (1) Source: Savills Research & Consultancy Note: (1) In deriving the long term forecast for the competitive set, we have considered the historical performance of the competitive set as well as the long term historical ( ) performance of the High Tariff A sector Forecasts on the competitive set of Renaissance Harbour View Hotel The historical performance of the competitive set (i.e. The Excelsior Hong Kong, Novotel Century Hong Kong, Regal Hong Kong and Park Lane Hong Kong Hotel) fared reasonably well compared with overall High Tariff A hotels, with average room rate and occupancy rate movements over the past four years tracking the market (R 2 equals 90% and 84% respectively). Based on this historical relationship, the average room rate growth, occupancy rate and RevPAR growth projections of the Renaissance Harbour View Hotel competitive set are as follows: Average room rate growth, occupancy rate and RevPAR growth projections for the competitive set, 2013E 2015E and long-term forecast Year Occupancy rates Average room rate growth RevPAR growth (%) (%) (%) 2013E E E Long-term forecast (1) Source: Savills Research & Consultancy Note: (1) In deriving the long term forecast for the competitive set, we have considered the historical performance of the competitive set as well as the long term historical ( ) performance of the High Tariff A sector. IV-62

63 5.0 TSIM SHA TSUI HOTEL PROPERTY 5.1 Property description Hyatt Regency Hong Kong, Tsim Sha Tsui ( Hyatt Regency TST ) was completed in 2009 and has a total GFA of approximately 278,000 sq.ft. It is part of a mixed-use scheme which also comprises a six-storey shopping mall (K11) and a residential development (Masterpiece).The hotel spans from the 3 rd floor to 24 th floor, providing 381 hotel rooms in total. There are five Salons (function rooms), a Regency Ballroom and one business/meeting centre in the hotel, all of which are on the 3 rd floor. The Regency Ballroom can be divided into two which enables the hotel to hold meetings, seminars, exhibitions or wedding banquets. The five Salons were renovated in 2012 to provide more flexibility and three of them can now be combined to form a larger meeting venue. The business/meeting centre offers secretarial and printing/copying services, provided by the concierge desk. The Regency Club Lounge on the 23 rd and 24 th floors of the hotel, which is for Regency Club Suite guests as well as diamond members or above of the Regency loyalty programme, offers club guests a private check-in and check-out service, as well as a free daily complimentary continental buffet breakfast, all-day coffee/tea, evening cocktails and canapés. A gymnasium is located on the 10 th floor while the outdoor swimming pool and sundeck is on the 8 th floor. The swimming pool is part of the residential clubhouse and is shared with Masterpiece residents. Bar. There are four restaurants in the hotel, namely Hugo s, Café, Chinese Restaurant and the Chin Chin 5.2 Location analysis, including recent district developments and trends Hyatt Regency TST is located at 18 Hanoi Road, Tsim Sha Tsui, on top of shopping mall K11 and is a one-minute walk from Nathan Road and another popular shopping mall isquare. It is located in one of Hong Kong s most popular tourism and retail destinations and benefits from extensive transport links with the rest of the territory, in particular the MTR as there is a direct linkage from Tsim Sha Tsui MTR Station to K11 and thus Hyatt Regency TST. IV-63

64 Location map of Hyatt Regency TST No Development 1 isquare 2 K11 3 Park Lane 4 Elements 5 Canton Road 6 Redevelopment of the New World Centre Express Railway Sta on 8 West Kowloon Cultural District 9 Peninsula Hotel 10 Sheraton Hong Kong Hotel 11 Intercon nental Hotel 12 Shangri-La Hotel Best Western Grand Hotel 14 The Langham Hong Kong Hyatt Regency TST W Hotel Hong Kong 16 Ritz Carlton Hotel 17 Interna onal Commerce Centre (ICC) 18 China Hong Kong City (Office/Mall/Hotel) 19 Silvercord Centre (Office/Mall) 20 Lippo Sun Plaza (Office/Mall) Subject property Shopping centres/streets Upcoming projects Hotels Office Mixed-Use Piers Tourist attraction Harbour City (Office/Mall/Hotel) 22 Hong Kong China Ferry Terminal 23 Ocean Terminal 24 Star Ferry Pier Heritage 26 Clock Tower 27 Hong Kong Museum of Art 28 Avenue of Stars Source: Savills Research & Consultancy Tsim Sha Tsui and its proximity are well-established retail, entertainment and commercial areas. New developments and scheduled improvements in urban design will ensure the long-term popularity of the area. Historic buildings, modern shopping malls, top-quality restaurants and the magnificent view of Hong Kong Island s skyline have made Tsim Sha Tsui a must-visit place for tourists. With various cultural facilities including the Hong Kong Space Museum, Hong Kong Cultural Centre, Hong Kong Museum ofart, Hong Kong Science Museum and Hong Kong Museum of History, Tsim Sha Tsui is ideal for a diverse range of educational, cultural and entertainment activities. Tsim Sha Tsui has developed into a transportation hub. Passengers travelling from Tsim Sha Tsui to other parts of Hong Kong can choose from a wide range of road and rail links, including the MTR West Rail, Tsuen Wan Line, Tung Chung Line and Airport Express, which connect to all major business areas such as Central, Causeway Bay and Mong Kok, as well as all the new major developments on Kowloon Peninsula including Kowloon East, WKCD and the Express Rail Link. Cross-boundary ferry services to Pearl River Delta cities, including Macau, Zhuhai, Shunde, Zhongshan and Panyu, are available at the China Ferry Terminal in China Hong Kong City. The Hung Hom Cross-Harbour Tunnel, the Western Harbour Crossing and the Star Ferry all link Tsim Sha Tsui to Central and Wan Chai on Hong Kong Island. Tsim Sha Tsui is a major tourist destination and an important cultural hub in the territory. Historic buildings, museums and unique attractions including 1881 Heritage, Hong Kong Clock Tower, Avenue of Stars and the Star Ferry Pier have made the district a major draw for tourists. IV-64