Wednesday, 16 November 2011

China's luxury hotel boom threatened by low occupancy rates

I previously reported on China's booming hotel sector and how it had become a magnet for some of the world's most prestigious hotel chains. Recent figures have shown that occupancy rates are at the lowest in Asia after India and that occupancy in Shanghai stood at around 50% compared with 80% for Singapore and Hong Kong.

Nigel Summers, a director at Hong-King based Howarth Asia-Pacific which tracks the hospitality industry believes that the offering is at saturation point:

“Hotels in some markets of China are clearly oversupplied in the next three to five years, and they won’t be generating good returns, China has had a very strong demand. The question is whether the increase in demand is going to be big enough to handle all the new hotels.”

One chain who show no sign of stopping is Hilton who plan to have 100 hotels in the country by 2014, four times as many as they currently have in operation. Intercontinental Hotels Group Plc have also said that one in four of all future hotels that it opens will be in China.

The hotels in China that seem to be faring better are those at the budget end of the market. Home Inns & Hotel Management Inc who operate 1,004 properties had an occupancy rate of 94% in third quarter while 7 Days Group Holdings filled 85.5% of rooms at its 838 properties. The rates at Home Inn's in Shanghai cost approximately £25 per night compared with £250 at Hilton in Jingan district of Shanghai.

One area that looks like to struggle is Tianjin which has a population of 9.8 million and a hotel occupancy rate of 45%. There are plans to double the amount of hotel space in the next three years with no guarantee of increased vistitors. One possible reason for these development projects between global hotel chains and local business people is the kudos attracted with owning a prestigious property such as a hotel rather than projects which make sound business sense.

The move may also be of risk to shareholders of the chains and Ricco de Blank CEO of the worlds biggest developer Sun Hung Kai Properties thinks that chains "Carry the risk of diluting their brands. It’s a worry just to see all these brands going to China and other places in Asia at such a rapid race because they can’t go anywhere else, and Wall Street is expecting certain growth.”

No comments:

Post a Comment