The hotel, managed by Novotel parent Accor, is being bought by a joint venture in which Shangri-La Asia and Kerry Properties will each hold 30 per cent and their corporate parent Kerry Holdings will own the rest.

Shangri-La has 49 hotels operating under the five-star Shangri-La and four-star Traders brands.

“This might open up another road for us when it comes to branding opportunities, a tourist brand lower than the Traders,” Shangri-La chief financial officer Madhu Rao said. “We have to put our heads together and decide what to do.”

Accor will continue to operate the hotel for another year, he said.

Thanks to a surge in tourist arrivals, mostly mainlanders seeking relatively low-cost accommodations, Hong Kong’s hotel operators are enjoying a banner year.

According to the Hong Kong Tourism Board, the average hotel room rate last month was HK$920 a night, up 18 per cent from a year earlier. It said the average occupancy rate climbed 3 percentage points to 89 per cent, even as the number of hotel rooms on offer rose 3.4 per cent.

Shangri-La and its partners are paying HK$2.1 million per room, or HK$4,707 per square foot for the acquisition.

“It is a market price,” said UBS investment research director Eric Wong, who reckons that the hotel’s price tag was boosted by its proximity to the University of Hong Kong and the prospect that MTR Corp will open a station nearby if its proposed West Island line extension goes ahead.

The new MTR line, tentatively slated for completion in six years, will add three new stations - University, Sai Ying Pun and Kennedy Town.

Last year, Kerry Properties won the contract for an Urban Renewal Authority residential redevelopment in Sai Ying Pun estimated to cost HK$2.5 billion.

Surveyor Albert So Chun-hin said since there had been no hotel sales in the city over the past year, “this will become the benchmark for valuation of four-star hotels.”

A year ago, Mr So said the asking prices for three and four-star hotels in Yau Ma Tei and Mong Kok were almost HK$1.5 million a room.

Colliers International research and consultancy director Simon Lo said the new owners could also turn the hotel into serviced flats.

Two-bedroom, 948 square foot units in a nearby serviced apartment building, the Manhattan, are leased for HK$30,000 a month, while 600-square foot units go for HK$12,000, he said.