Struggling Hotels Set To Become 'co-living' Spaces

Investors are targetting Hong Kong's hotels for conversion into co-living spaces as the tourism industry struggles with the effects of months of protests and the coronavirus pandemic.

The 37-room Paris Hotel in Jordan gave up its lease, which was taken up by co-living operator LINKo Living in April at HK$230,000 per month. Co-living companies offer residents their own rooms with shared common areas such as the living room and kitchen.

Co-living investments typically offer yields of around four to five per cent, more than other mainstream real estate investments, according to Reeves Yan, of property consultancy CBRE.

A major player, Warburg Pincus-backed Weave which has two premises in Hong Kong and two more opening this year, said it's sticking by its expansion target to have 3,000 beds in the next five to seven years, up from 700 now, and it's looking at assets including boutique and budget hotels.

Weave's occupancy rate in the first quarter was 85 per cent, down slightly from 95 per cent in January and at the end of last year. Currently half of its residents are expatriates.

"When the market is not good we benefit from people who want flexibility, from people who've become a bit more price conscious," said Sachin Doshi, Weave founder and CEO.

Unlike traditional residential leases that require at least a one-year commitment, co-living offers the flexibility of shorter-term stays.

Oootopia, owned by Hong Kong-based Arch Capital and with three premises in the city all converted from three-star hotels, said it won't rule out buying if it sees a bargain, although it will be prudent.

"You would want to observe more and whether prices will get more attractive. This is not the moment for fast expansion."

Hotel occupancy rates in the recession-hit economy have plummeted since protesters took to the streets last June. The coronavirus outbreak was the final straw for Hong Kong's battered hotel industry as room revenues took a hit from travel curbs and flight cancellations

"Nine-and-a-half hotels out of 10 are losing money now because there're no more tourists and they need to solely rely on domestic demand, so they're just hanging in there," CBRE's Yan said.

The industry posted an overall occupancy rate of 29 per cent in February compared with 91 per cent a year earlier, the Hong Kong Tourism Board said, as visitors to the financial hub plunged 98 per cent for the month.

Three and four-star hotels, many run by domestic investors including Casa Deluxe Hotel, Butterfly on Morrison and two branches of Empire Hotels, have closed down in the past three months.

The InterContinental Hotel in Tsim Sha Tsui closed last week to undergo a two-year facelift that will see it lay off around 500 people. Many five-star international hotels recorded single-digit occupancy rates in February and March, but they have more cash reserves to keep them going than smaller hotels, industry participants said. (Reuters)