Hong Kong's major property developers may shun suburban sites earmarked for hotel developments, but smaller players remain keen on acquiring en bloc buildings in outlying areas to transform them into hotels and tap into the growing tourism market, say analysts. The strong interest among smaller players in the hospitality sector is likely to be sustained despite the government's move to lower total allowable area when developers apply to redevelop a residential site into commercial use on Hong Kong Island, they add. A number of newly opened or soon-to-open business hotels are to be found along major routes in Wan Chai, Yau Ma Tei and Mong Kok and most have been established by renovating or redeveloping old buildings. A site at 105 Wing Lok Street in Sheung Wan changed hands in January last year for HK$65 million, for instance, and was renovated into a hotel - Mingle on the Wing - and opened in December. And the owner of a building on 353-355 Hennessy Road converted the office block into the Walden Hotel that opened earlier this year. 'I think there is an increasing supply of small-sized hotels - offering 50 to 100 rooms each - because small developers are finding it is more difficult to acquire land and are therefore turning their attention to acquiring old buildings in order to redevelop or renovate them into business hotels,' said William Cheng Kai-man, the chairman of Magnificent Estates. Seven hotels with fewer than 100 rooms opened last year, up from four in 2006, figures from the Hong Kong Tourism Board showed. Chee Hok-yean, an executive vice-president and head of corporate advisory, Asia, at Jones Lang LaSalle Hotels, said: 'Strong tourism growth and demand for hotel accommodation in recent years have encouraged developers seeking alternative uses for their older buildings to consider the hotel sector.' However, Mr Cheng believed small-scale hotels did not offer lucrative investment opportunities because they lacked economies of scale. 'Operating cost will probably account for 60 per cent or more of revenues, making the yield unattractive,' he said. But Henry Lam Wai-hon, an executive director of investment properties at CB Richard Ellis, saw continued interest in en bloc demand from small players intent on hotel projects. 'I think the trend [of turning an en bloc building into hotel] will go on as the demand for hotels is still large,' said Mr Lam. The demand would continue despite the government's move to lower allowable plot ratios on such rezoning from 15 to 12, he said, because the ruling was different from area to area. High tariffs for luxury hotels would also provide a market gap for business hotels and the strong tourist traffic would underpin the growth of the hotel market, he said, while property in general remained an attractive alternative investment in a volatile equity market. Mr Cheng expected revenue from his group's hotel business would grow 15 per cent this year because the weaker Hong Kong dollar had been attracting more tourists. He was not concerned about competition from increasing supply because of his group's stronger marketing power. Magnificent Estates operates four hotels, two in Hong Kong and one each in Macau and Shanghai, offering 1,100 rooms in total. A redeveloped hotel project on Bowrington Road in Causeway Bay will open for business next year, and another hotel will open on Austin Avenue in Tsim Sha Tsui in 2010. Other mid-sized developers have been actively acquiring old buildings to redevelop them into hotels. Far East Consortium said earlier it planned to spend HK$100 million to redevelop Tower 28 - the former Toppy Tower on Castle Peak Road in Kwai Chung - for hotel use. Industry watchers said it could also redevelop the 41-year-old Precious Hill Mansion in Sai Wan after gaining 100 per cent of the building through an enforced auction. The number of hotels in Hong Kong rose 11.1 per cent from 126 in 2006 to 140 by the end of last year. Room numbers were up 9.45 per cent to 51,581, official figures showed, and it is expected that the number of hotels will further increase to 190 in 2012, with room numbers reaching 63,732, a growth of 23.56 per cent.