Changes to Hotel Leases in Asia-Pacific and Europe During COVID-19 (5/5)
By Dan Voellm, MRICS
Thursday, 19th August 2021

Part 5: Changes to hotel leases.

This series of articles discusses key characteristics by illustrating the most salient points of hotel leases (part 1) in Australia, Mainland China, Hong Kong SAR (part 2), Malaysia and Thailand, Singapore, South Korea in Asia-Pacific (part 3) and Austria, Germany, Switzerland (jointly as DACH) and the UK & Ireland in Europe (part 4) along with our conclusion (part 5).

Japan, as a major leasing market in Asia-Pacific, deserves its own article (or book) and is not discussed in this series.


COVID-19 has posed numerous challenges to the world, the hotel industry and hotel lessees in particular. Hotel leases come in many types and structures and may be even more diverse than hotel management agreements.

The business interruption caused by the pandemic has lessees suffering from high fixed rent components, which owners are reluctant to forego.

However, replacing a lessee during these testing times at similar or more favourable terms can prove to be very difficult. These dynamics force both sides to workout solutions in the interim or make (permanent) adjustments to the lease agreement.

The below list summarizes the most common workarounds and options at hand for lessees and owners alike (in no particular order):

  • Consider a rental pause for a specific period and extension of the lease term at a multiple of that period.
  • Explore rent deferral and accrual.
  • Adjust lease coverage ratios.
  • Conduct periodic (fixed) rent reviews by an independent, professional property valuer.
  • Introduce a RevPAR adjustment mechanism for fixed rents.
  • Reduce yield targets.
  • Increase the variable rent component and lower the fixed component.
  • Have owners to proactively seek out value-add opportunities.
  • Consider shorter terms to lessen impact on balance sheet.
  • More carefully discern what guarantees lessee can offer.
  • Lessees to provide see-through or transparency on the operating business for the owner to assess risk more carefully.
  • Consider lessees to more diligent underwriting of lease structures by operators with stress-tests.
  • Operators need to develop innovative lease structures.
  • Differentiate variable lease component rates for rooms and food and beverage.
  • Have either the owner or lessee sublease as many food and beverage outlets as possible to further de-risk.
  • Owner may need to assume (some) pandemic risk or similar “systemic” revenue shortfall over a longer period.
  • Introduce mandatory operating rights for leases with a variable rent component.
  • Lessees may seek stop mechanisms and go-dark clauses.
  • Consider replacing archaic force majeure clauses.
  • Well-capitalized operators may be able to grow market share in the short-to-medium term as market conditions are more favourable to them.

Already prior to the pandemic, leases had fallen out of favour among asset-light hotel operators, a trend exacerbated during COVID-19.In many markets, this period of distress will force a rethink of how leases are looked upon by various stakeholders.

Similar to other sectors of real estate, owners need to start working harder, potentially together with their lessees to maximize their asset returns. In those cases, they get greater transparency on the business model and may be able to accept more variable terms. Which way the industry will go, only time will tell.

This is the last article in the series. Thank you to all who gave your time and support - you know who you are.

Part 1: Overview of Key Aspects in Hotel Leases: Hotel operating or master leases, referred henceforth as hotel leases, are among the most conservative approaches to hotel ownership.

Part 2: Hotel Leases in Asia-Pacific (Australia, PR China, Hong Kong SAR).

Part 3: Hotel Leases in Asia-Pacific (South Korea, Singapore, Thailand & Malaysia).

Part 4: Part 4: Hotel Leases in Europe (UK & DACH).

Dan Voellm, MRICS is the CEO & Founder of AP Hospitality Advisors, responsible for all aspects of the firm. Based in Hong Kong he covers the entire APAC region.

With more than 15 years of consulting experience, Dan Voellm has provided advice in 24 territories across Asia Pacific. Prior to rebranding the firm to AP Hospitality Advisors in 2021, Dan Voellm was Managing Partner of HVS Asia Pacific responsible for five offices in Greater China and Thailand. He started his career to become Vice President at HVS’ global headquarters in New York (2005-2008) conducting a wide range of appraisals, market studies and underwriting due diligence services in 22 states as well as Canada. Dan Voellm brings a strong understanding of the hospitality industry to AP. His experience in hotel and food and beverage operations in Germany, Switzerland, England and the United States is complemented by an Honours Bachelor of Science Degree from Ecole hôtelière de Lausanne in Switzerland.

Dan works closely with key institutional and private owners of hotel properties, financiers, developers and investors, and has gained a strong understanding of their investment requirement and approaches to assessing market values of investment properties. Dan further advises on property and concept development and strategy as well as expert witness testimony.

Dan is vice-chair of the Urban Land Institute’s (ULI) Hospitality Development Council in Asia Pacific and became a Professional Member of the Royal Institute of Chartered Surveyors in 2016.


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