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Amy Chew

THE impending closure of the landmark Lee Gardens Hotel in Causeway Bay at the end of this month emphasises the vulnerability of hotels suffering from old age and low yield.

  Add to that new regulations and inflation and the situation has started some hotel owners rethinking the viability of continuing to run ageing properties such as the Lee Gardens.

  While the 660-room hotel has consistently returned good performance, the potential high earnings of redeveloping the site into a commercial complex, which sits on a strategic location, was too much to resist.

  The site has the potential development area of at least 728,000 sq ft.

  Some analysts predicted that the net annual rental income from the redevelopment of the site could reach as much as $475 million a year.

  According to Colliers Jardine hotels and leisure director Robert Chambers, office rentals were increasing considerably and therefore redeveloping an ageing property was attractive to some hotel owners.

  ''Some hotels have become uneconomical with age. As they age, they lose their competitiveness and the owners therefore have to upgrade the property, which costs a lot of money,'' he said.

  He added that at the moment, there was interest in the market place for old-styled properties which can be demolished and redeveloped.

  ''In Kowloon, because of the relaxation on the height restrictions, older properties which were built to a certain height, lose their viability,'' Mr Chalmers said.

  ''These properties are the ones which are susceptible to being redeveloped.''   Changes in the business environment also have served to stimulate more interest in the property sector in Kowloon.

  ''With the Kowloon reclamation going on, it has stimulated more interest from the people in Kowloon,'' he said.

  According to an analyst from Warburg Securities, the redevelopment of hotels into commercial buildings is not likely to develop into a trend ''as yet''.

  ''The return from investment and capital appreciation from commercial buildings in the medium-term has a higher potential than from hotels,'' said Justin Kennedy.

  Add to that, the increase in hotel rooms coming on to the market meant that older hotels struggled to compete.

  ''The cost of upgrading an older property is high while the returns may not be commensurate and therefore keeping the property as a hotel is not so attractive,'' Mr Kennedy said.

  ''On top of that, the implementation of the new regulations on fire safety means hotel owners have to spend more money on their properties to fit the necessary equipment,'' he said.

  The new fire safety rules require that all hotels install sprinkler systems and other safety measures.

  In some instances, the hotels are having difficulty in complying with the safety rules as because of their age they have little or no leeway to accommodate the equipment demanded.

  Sassoon Securities analyst Vivian Kwok said the redevelopment of hotels into other uses had a positive impact on the hotel industry.

  ''With less rooms available in the market, existing hotels can expect to have more business,'' she said.

  Early last month, another hotel fell under the hammer of redevelopment for a higher yield.

  The China Harbour View Hotel in Wan Chai has been sold by CNT Group to Pearl Glorious Investment for $620 million.

  According to Pearl Glorious, the site would be redeveloped into commercial office and retail space.

  The plan was to construct grade A commercial property in an area where the standard of property was not as common as in Central.



Lee Gardens fate sign of the times