Luxury Segment Outperforms and Alternative Living Demand Reshapes Investment Landscape
Hong Kong’s hotel market continues to recover steadily, supported by rising visitor spending, resilient leisure travel demand and limited new supply, according to Knight Frank’s latest Hotel Report 2026. While overnight visitor arrivals remain below pre-pandemic levels, recovery continues to be uneven across source markets. Short-haul markets show significant divergence. Overnight arrivals from Japan and Korea remained around 39% below 2018 levels. Stronger spending by Chinese mainland visitors has underpinned the recovery. Total hotel spending is forecast to reach HK$37.5 billion in 2026, representing around 90% of the peak level in 2018.
In addition, hotel expenditure per capita generally declined in 2025 across most source markets, with the exception of Chinese mainland and North America. Despite weaker per capita spending across most regions, aggregate hotel expenditure has continued to grow, supported by increases in visitor volumes and the stronger contribution from the Chinese mainland.
A key challenge to the recovery of Hong Kong’s hotel sector has been the decline in business travel and the corresponding reduction in hotel expenditure. In the first half of 2026, business visitor arrivals to Hong Kong remained 43% below 2018 levels, leaving room for further recovery as corporate travel normalises.
The report highlights a growing divergence in hotel performance. High-Tariff-A hotels outperformed all other segments, achieving a record RevPAR of HK$1,883 in 1H 2026, exceeding 2018 level. In contrast, while Medium Tariff hotels recorded improvement in occupancy, these gains were insufficient to offset declining room rates, resulting in the largest RevPAR reduction among all hotel segments.
Antonio Wu, Head of Capital Markets, Greater China said,
“Although business travel has yet to fully recover, with hotel revenue showing gradual improvement, leisure demand has proven remarkably resilient and continues to support the market. At the same time, rising demand from non-local students is creating new opportunities for hotel owners to convert selected hotel assets into co-living or student accommodation. High Tariff-B and Medium Tariff hotels with smaller unit sizes, lower room counts and sufficient communal facilities are considered well-suited for such conversion. As a result, hotels offering passing yields of 4.5% or above, or possessing conversion potential to alternative uses, continue to attract strong investor interest,”
Student accommodation has emerged as a major investment theme, with several hotel transactions completed in 2026 earmarked for conversion. The acquisition of Regal Oriental Hotel, expected to provide more than 1,500 student beds, is set to become Hong Kong’s largest hotel-to-student accommodation conversion project to date.
Market Outlook: Hong Kong’s hotel market continues to recover, but growth remains constrained by weaker business travel demand. While High Tariff A hotels have shown strong pricing resilience, demand from expatriates, non-local students and migrant families is creating new opportunities for hotel conversions and alternative accommodation uses. Looking ahead, limited new supply and rising visitor arrivals are expected to support higher occupancy and room rates, strengthening market fundamentals.