Operators are renting out more rooms on a monthly basis, putting them in direct contest with serviced accommodation The trend among hotel operators to lease rooms to long-stay customers is expected to continue over the next few years, thus increasing the competition in the serviced apartment market. Supply at hotels is expected to rise sharply as investors race to capitalise on increased tourism, partly fuelled by the relaxed policy on individual travellers from the mainland. However, some hotel rooms, especially those in three-star projects, would probably be reserved for lease as long-stay packages on a monthly rather than a daily basis. There has been a growing trend in recent years for hotel operators to rent out their rooms on longer term leases, putting the accommodation in direct competition with serviced apartments. Victor Yuen, manager of the residential department at Knight Frank, said the profitable business of serviced apartments has prompted some hotel operators (three-star hotels in particular) to convert some rooms into serviced flats. For example, rooms in Charterhouse Hotel in Wan Chai and Harbour Plaza Hotel in North Point have been leased out to long-stay tenants. Cheung Kong (Holdings) is an active player in leasing hotel rooms as serviced flats to generate a steady rental income. Besides the Harbour Plaza Hotel in North Point, the group has long-stay rooms for lease at its Harbour Plaza Resort City in Tin Shui Wai, Harbour Plaza Metropolis Hotel in Hunghom and Horizon Suite Hotel in Ma On Shan. By converting some rooms into serviced apartments, hotel operators are able to maintain a higher occupancy rate at lower running costs, Mr Yuen said. 'This is becoming a market trend posing direct competition to traditional serviced apartments,' he said. These hotel rooms have housekeeping and room services, flexible leasing terms similar to serviced apartments, and rental packages that are usually all-inclusive. An outstanding example of a hotel that has been converting rooms into serviced apartments is the Grand Plaza Hotel, in Quarry Bay. Hang Lung Properties completely revamped the hotel last year, turning it into serviced apartments. Mr Yuen said the conversion was an exceptional case, and he did not expect many hotel operators to do likewise and resort to the same market strategy. 'You can see a huge supply of hotels coming on the market in the future, and some of them will convert partly into serviced apartments,' he said. Despite the increased competition from hotel rooms, serviced apartments continue to maintain their edge and their appeal, Mr Yuen said. 'Serviced apartments enjoy the privileges of privacy, which hotels cannot provide. This could explain why some tenants of serviced apartments come from hotels,' he said. According to DTZ Debenham Tie Leung, 54 hotel projects are planned or will be completed between now and 2007, providing a total of 27,830 rooms. At the end of last year, there were 96 hotels in Hong Kong with a total of 38,133 rooms. Six projects with 2,881 rooms are due for completion this year, followed by 11 projects with 3,707 rooms next year and nine projects with 6,668 rooms in 2006. The supply is expected to increase to 14,574 rooms in 28 projects in 2007. These include 19 three-star hotels involving 8,187 rooms, 23 four-star hotels with 10,407 rooms, and 12 five-star hotels with 9,236 rooms. Simon Lo, director of research and consultancy at Colliers International, said the trend to lease hotel rooms as serviced flats had been going on for some years. 'The situation is especially obvious during the slow tourism years, when hotel operators are under pressure to fill rooms,' he said. Leasing rooms in long-stay packages guarantees high occupancy rates and generates a steady income, he said. Meanwhile, with tourism booming and mainland visitors coming to Hong Kong in increasing numbers, many hotel operators are expected to focus on customers arriving on a daily basis. 'Many hotel operators are working on new strategies to capture business from the growing numbers of individual mainland travellers,' he said. The pressure to fill vacant rooms was not as great as it was a couple of years ago, so the impulse to rent out to long-stay visitors had declined, he said. 'Average room rates are higher on a daily basis than on longer-stay packages. When the hotel market improves, the offers of hotel rooms being leased as serviced flats should diminish,' he said.