Hong Kong hotels may become office complexes as owners eye bigger profits

Hong Kong’s tourism industry may be on the upswing after a three-year downturn as more tourists visit from the mainland, but this has not stopped hotel owners toying with the idea of converting them into office complexes amid strong demand and the prospect of bigger profit.

The 317-room Grand View Hotel, formerly known as Newton Inn, in North Point, and the 300-room Rosedale Hotel in Causeway Bay are two such properties that could see their new owners turning them into office towers.

“Plans for the proposed conversion of the two hotels into office developments have been submitted to the Buildings Department,” said William Cheng Kai-ming, chairman of Shun Ho Property Investments, which bought Newton Inn for HK$1 billion (US$128 million) from Henderson Land Development in February 2017.

Cheng’s family also bought the Rosedale Hotel for HK$1.6 billion from Bank of China last June.

“It does not mean we will convert the two properties right away. We are still optimistic as the hotel market has climbed out of a three-year depression since the middle of 2017. Hong Kong’s overall hotel revenue has increased by 10 per cent last year as the trend of tourists from the mainland is on the rise,” he told South China Morning Post.

Rosedale Hotel, however, is currently leased out to Rosedale Hotel Holdings until 2020 for a monthly rent of HK$3.5 million, which means the hotel cannot be turned into a commercial block until then.

“The application to secure government approvals for the redevelopment will provide us with an investment alternative in the future,” he said.

The Shun Ho group and the Cheng family were the most active buyers of hotels last year, paying an average HK$10,000 per square foot for the two properties.

In 2017, the total transaction value of hotels in Hong Kong amounted to HK$12.9 billion, the highest in Asia, according to JLL Hotels & Hospitality Group. In was higher than the HK$1.3 billion recorded in 2016, but less than half the HK$28 billion achieved in 2015.

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Cheng estimated the conversion to an office block after tearing down the buildings would cost an additional HK$2,000 to HK$5,000 per sq ft.

With office spaces currently selling for HK$30,000 to HK$50,000 per sq ft, he expects the redevelopment could provide a huge profit gain.

Last week, Henderson Land Development sold its brand new grade A office building in the non-core business district of North Point for HK$9.95 billion to Shenzhen-listed financial institution China Create Capital.

The price tag equates to about HK$30,169 per sq ft, a record in North Point in terms of price per square

foot, said agents.

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“For investors, Hong Kong hotels are appealing because of the discounted rate per square foot when

compared to other asset classes, something that has been a factor in some recent transactions,” said

Mike Batchelor, Head of Investment Sales Asia, JLL Hotels & Hospitality Group.

He said that properties such as J Plus Hotel had also been bought to be rebuilt into an office tower.

Meanwhile, the Town Planning Board on December 22 approved the redevelopment plan of the 263-room Crowne Plaza Hong Kong in Causeway Bay into a mixed-use scheme.

The go-ahead does not necessarily indicate the owners will go for the transformation.

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Vincent Cheung, a deputy managing director for Asia valuation and advisory services at Colliers International said lots of owners would like to prepare a “plan B” should there be any dramatic change in market sentiment.

“Owners could seek government approval for the conversion first and they may consider whether to proceed with it later,” he said.