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Hong Kong, growth through supply

Globally renowned as a key financial hub, Hong Kong has managed to maintain good hospitality performances despite a dramatic drop in visitors from mainland China. A paradigm observed in certain emerging countries, the former Asian dragon is increasing its revenues through growth in supply.

Home to 7.2 million people, Hong Kong is the fourth most densely populated territory in the world. It is unquestionably one of the leading financial centres in the world, and it has one of the highest concentrations of corporate headquarters in the Asia-Pacific region. It also boasts the second highest number of billionaires per capita, after Monaco. The total number of visitors to Hong Kong from around the world in 2016 was nearly 57 million, according to official statistics.

The top ten source markets for visitors to Hong Kong, in 2016, were mainland China, Taiwan, South Korea, USA, Japan, Macao, the Philippines, Singapore, Thailand and Australia. These 10 countries accounted for 92% of all visitor arrivals.

Hotel supply has increased in recent years, with newer and higher range hotels being introduced and developed. This has resulted in high occupancy rates (87% in 2016) after a slight decline in 2015. The average daily rate (ADR) for rooms has decreased over the last two years and is lower than that of 2011. The increase in hotel revenue (+2.4% on average over the last 5 years) is, therefore, exclusively due to the development of the hotel supply.

The RevPar decreased further to the decline between 2015/2016 since demand did not grow as quickly as the supply. While the supply grew by 3.9% on average per year, the number of rooms sold only grew by 3.4% per year.

The slower growth in demand was, in part, due to the slowdown of visitors from mainland China visiting Hong Kong, which was down 6.7% in 2016. The number of international visitors, however, continued to grow rapidly thanks to the appeal of an improved supply. This resulted in an increase in number of rooms sold, and thus an increase in revenues in the period from 2012 to 2016. Average daily rates, however, dropped during this period further to a strong increase in supply (which had been on a downtrend for two years compared to 2012).

The future looks promising for the RevPAR, as the volume of both mainland and international visitors for January to August 2017 continues to grow (+1.9% for Chinese and international arrivals), suggesting renewed demand after two more difficult years. In these years, the supply shouldered Hong Kong's revenues. While rare in European and North American cities, this scenario is, fairly common on emerging markets.

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