As the world closely watched the political developments in the USA and China, the decrease in business travel over the summer holidays was followed by a slowdown in demand for the region in quarter three, with the exception of Hong Kong, supported by mainland China.
HONG KONG
Hong Kong received more than 13 million visitors – a record high âˆ' in quarter three of 2012, reflecting 17.7% year-on-year (YOY) growth. This was mainly driven by a record 9.74 million visitor arrivals from mainland China, reflecting a 26.8% increase YOY.
This significant growth is mainly attributable to the summer holidays and to same-day visitors âˆ' quarter three traditionally being the high season for leisure travel for mainland Chinese – and to the favourable exchange rate for the Renminbi.
Among the top five source markets, Japan and South Korea recorded the strongest YOY growth rates at 4.7% and 2.7%, respectively. Conversely, Hong Kong recorded a drop in visitor arrivals from most of the Southeast Asian markets.
This is likely due to the increased pricing level of Hong Kong hotels, displacing value-oriented demand from these markets.
Taiwan, the second-largest source market for Hong Kong, registered a 2.7% decline YOY due to the economic slowdown. The US market also declined by 3.3% YOY, in light of the summer holidays and a further slowdown in the financial sector.
Similarly, other long-haul markets, such as Europe and Oceania, all recorded YOY declines. This is attributable to the uncertain economic environment that prompted more conservative vacation budgets.
Hong Kong received more than 35.3 million visitor arrivals in the first nine months of 2012, 16.3% higher than 2011 figures. With the traditional high season quarter four approaching, Hong Kong is expected to easily achieve its target of 44 million visitor arrivals for 2012.
The share of overnight visitor arrivals increased marginally quarter-on-quarter (QOQ), from 48.9% in quarter two to 49.2% in quarter three of 2012. This is attributable to the significant increase in total visitor arrivals and more favourable pricing during the summer period, as hoteliers aimed to maintain occupancy while business travel contracted.
Growth of overnight visitor arrivals accelerated in quarter three: total overnight arrivals and that from mainland China increased by 6.9% and 12.2% YOY, respectively.
The continued strengthening of the Renminbi makes Hong Kong more attractive for shopping and travel. Japan and South Korea saw overnight visitor arrivals grow by 8.4% and 4.3%, respectively.
Increased tensions between China and Japan over the controversial Diaoyu Island (known as Senkaku Island in Japan) caused Japanese travellers to shift to alternative destinations in the region. In contrast, Taiwan, USA and other Southeast Asian countries saw declines in overnight arrivals in quarter three, due to softer demand given the economic situation.
Demand from long-haul markets such as Europe and Oceania also declined in quarter three, impacted by the lingering European debt crisis.
The RevPAR of the high-end hotel market in Hong Kong reached HK$1,951 in the third quarter of 2012, the highest third-quarter RevPAR performance on record. Demand slightly increased YOY in the third quarter, with marketwide occupancy edging up one percentage point to 85%. Average rate maintained momentum into the third quarter, increasing by 10% YOY to reach HK$2,307. Notably, average rate performance set a new record for all three quarters this year, supported by stable demand, supply constraints and demand from mainland China.
The outlook for occupancy levels remains cautious, as long-haul markets fail to perform and regional demand grows more price-sensitive. The global economic scenario will prevent any significant increases in corporate travel budgets. Reliant on market compression, average rate growth in 2012 is anticipated to remain healthy but is likely to slow (as it has already since quarter one of this year).
However, with quarter four being a traditionally strong business and leisure travel season, demand is expected to pick up, providing upside potential for average rate and RevPAR growth. The year 2013 is expected to provide limited average rate growth potential of up to 5% and flat occupancy performance, given the addition of supply.
MACAUVisitor arrivals to Macau continued to decline for the second quarter in a row. The city welcomed more than 7.2 million visitor arrivals in quarter three of 2012, posting a YOY decline of 1.7%. Growth of visitor arrivals from mainland China slowed to 1.6% YOY, as demand softened.
Other major source markets such as Hong Kong and Taiwan saw visitor arrivals decline by 7.7% and 8.1%, respectively. Both declines are likely attributable to the softening economic environment, particularly in Taiwan.
South Korea and Japan posted the strongest growth rate in quarter three at 8.9% growth YOY. Increased accessibility from Seoul to Macau and the launch of direct flights from Busan to Macau in July 2012 supported visitor arrival growth.
Additionally, Macau has become increasingly popular through exposure in Korean TV dramas, as a number of Korean productions have been set in Macau. Demand from Japan continued to recover and return to pre-earthquake levels. Demand from other Southeast Asia countries such as Malaysia, Singapore and India saw visitor arrivals decrease by 10.3%, 32.6% and 18.3%, respectively, impacted by regional competition.
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www.hvs.com/article/6143/the-greater-china-update-4q-2012 About the Authors
Daniel J. Voellm is Managing Director of HVS Hong Kong, has provided advice in major markets across Asia-Pacific. Prior to heading the Hong Kong office, Dan was Vice President at HVS' global headquarters in New York conducting a wide range of appraisals, market studies and underwriting due diligence services.
Dan brings a strong understanding of the hospitality industry to HVS. 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. Dan further advises on property and concept development and strategy. 
Cathy Luo is an analyst of HVS Hong Kong, working primarily on hotel consulting assignments including Market Studies and Feasibility Studies in the Asia Pacific region. Prior to joining HVS, Cathy worked in Revenue Management with Marriott Hotels in Dubai performing analysis and providing recommendations to support hotel strategy. Graduating with a an Honours Bachelor of Arts degree from Glion Institute of Higher Education and with previous working experiences in hotel operations, Cathy brings a comprehensive knowledge of the hospitality industry. Cathy has advised on projects in China, Singapore and Cambodia. 
