MAJOR cities in China witnessed mixed performances in the hotel sector during the first few months of 2014, according to research conducted by international real estate services provider Jones Lang LaSalle, which has provided an analysis of hotel performance as well as market conditions in Beijing, Shanghai and Hong Kong.

Beijing

Demand

For year to date (YTD) May 2014, international arrivals to Beijing were recorded at 1.7 million, a 6.7 percent decline from the same period a year ago. Concerns of air pollution as well as the continuing appreciation of the yuan, which  increases the costs in Beijing for leisure visitors, might have contributed to  the decline in international visitors.

Despite the decline in overall international visitor arrivals, tourists from South Korea and Japan, two of the top three source markets for Beijing, rose 12.2 percent and 8.2 percent, respectively. The increases are partly due to improving economies and promotional activities carried out by the central government. Similarly, visitor arrivals from Hong Kong, Taiwan and Macau have consistently shown a rise, with arrivals from Taiwan registering a significant growth of 13.6 percent year on year through May.

Supply

The Beijing JW Marriott Hotel Central, which was originally scheduled to open in 2013, opened in June 2014, adding 407 rooms to the market. This is the only international hotel that opened in the second quarter of this year in the capital city. The second half of 2014 may see more international hotel openings, such as the 279-room Rosewood Beijing.

Asset performance

The average daily rate (ADR) of upscale hotels in Beijing YTD May 2014 dropped 6.6 percent to 969 yuan (US$156). However, occupancy recorded an increase of 3.2 percentage points to 64.9 percent during the same period. As a result, revenue per available room (RevPAR) fell a slight 1.8 percent to 628 yuan.

12-month outlook

JLL estimates that 4,178 rooms will be added to the hotel stock over the remainder of 2014. With uncertainties in the economic environment, some hotels are expected to postpone their opening dates and adopt a wait-and-see approach. On a positive note, meetings, incentives, conventions and exhibitions (MICE) demand is set to remain strong in view of the pipeline of events in 2014. More than 180 exhibitions and major international conferences are scheduled in Beijing for 2014, with most planned for the second half of the year, including the Asia-Pacific Economic Corporation meetings in October and November. The rapid development of high-speed rail service to Beijing will also enhance accessibility and encourage domestic travel.

Shanghai

Demand

International visitor arrivals as of YTD May 2014 rose 7.6 percent to 3.3 million, according to the Shanghai Statistics Bureau. In particular, arrivals from Hong Kong and Macau recorded an increase of 19.4 percent from the same period a year ago, fueled by both corporate and leisure travel. The increase in corporate travelers might be due to the launch of the China (Shanghai) Pilot Free Trade Zone in September 2013.

Supply

The 180-room Hyatt Regency Chongming and 313-room Crowne Plaza Shanghai Noah Square opened in the second quarter of 2014. As planned, more than 10 hotels with approximately 3,000 rooms are scheduled to open in 2014. The 345-room Sheraton Jiading Hotel is expected to open by the end of this year while the rest of the hotels have yet to announce opening dates.

Asset performance

The ADR for upscale hotels in Shanghai fell 3.2 percent year on year to 1,049 yuan, while occupancy climbed by 5.1 percentage points to 62.6 percent as of YTD May 2014. As a result, RevPAR advanced 5.3 percent to 657 yuan during the same period.

12-month Outlook

As global economic conditions continue to improve, international arrivals are expected to show steady growth. Visitor arrivals from Hong Kong, Macau and Taiwan are likely to increase as government policies in place encourage business activities. Favorable policies that stimulate economic exchanges and tourism are likely to have a positive impact on visitor arrivals in Shanghai, as well as other major cities in the country.

Hong Kong

Demand

As of YTD May 2014, visitor arrivals continued to rise, recording a 13.6 percent increase.

This is driven mainly by the Chinese mainland source market, where visitors rose 17.6 percent year on year. Notably, Japanese inbound visitation has improved by 3.4 percent, suggesting that ongoing political tensions between China and Japan are having a reduced impact on tourism. Regional markets such as South Korea (up 17.5 percent) and Singapore (up 16.4 percent) registered the most significant year-over-year growth. As of YTD March 2014, visitors arriving for MICE registered a 5.2 percent rise, indicating more events have taken place in the city. The number of leisure visitors continued to see a significant increase of 18.4 percent during the same period.

Supply

In 2014, 3,331 hotel rooms are expected to open, according to the Hong Kong Tourism Board. If all projects materialize, hotel room stock will increase 4.8 percent to 73,348 rooms. In the first half of 2014, 843 hotel rooms opened, all of which are independently operated or managed by local chains. Hotels to open in the second half include the 37-room A3 Hotel, the 29-room Residence G, the 547-room Dorsett Tsuen Wan, the 68-room Pottinger and the 162-room Ovolo 64 Wong Chuk Hang Road. The majority of other hotels planned to open over the remainder of the year are relatively small in room count (below 150 rooms) and dominated by local brands.

Asset performance

As of YTD May 2014, occupancy for luxury hotels in Hong Kong was registered at 79 percent, an increase of 4.7 percentage points. ADR rose by 4.8 percent to HK$3,779 (US$487) resulting in strong RevPAR growth of 11.4 percent to HK$2,986. This indicates strong corporate and MICE visitation to the city.

12-month outlook

Despite headwinds facing some Asian economies, improvements in the United States and Europe bode well for corporate demand in Hong Kong, although weak activity in the finance industry is likely to impact demand in the luxury hotel segment. Leisure demand to Hong Kong continues to be supported by inbound tourism from the Chinese mainland, although the Hong Kong government has voiced concerns about the strains that the rapid growth of tourism is having on its infrastructure. Nevertheless, Hong Kong will remain a vibrant business and leisure hub as its hotel market continues to trade exceptionally well, although the pace of growth witnessed since the global financial crisis is likely to slow.