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September 21, 2015

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Hotels look to diversify as competition intensifies

By Cherry Cao | September 21, 2015, Monday | Print Edition

HOTELS in China are being pressured to diversify and appeal to a wider target audience as competition intensifies after a remarkable growth in the hospitality industry over the last decade, real estate adviser Savills said in its latest China Hotel Report.

The increase in demand in recent years has meant a diversification in the types of hotels entering China, which is now the largest tourism destination in Asia and the fourth-largest in the world. This is partly due to key events such as the Beijing Olympics and World Expo 2010 Shanghai, according to 2013 data by the United Nations World Tourism Organization.

While the China market has been traditionally split between business hotels in leading cities like Shanghai and Chongqing, and leisure hotels in tourist destinations such as Xi’an and Sanya, disposable income growth and a larger middle class have changed the way people perceive domestic travel, creating a shift toward balancing business and leisure.

The increase in domestic tourism has allowed hotel management companies and developers to begin diversifying offerings in specific markets in various cities across China. Where traditionally business hotels would have been popular there has been a distinct growth in the leisure segment, allowing for alternative hotels to be brought onto the market in the last few years, the report said.

Meanwhile, sluggish demand, especially from the business and government sectors, amid a steady stream of supply in the last five years, has pushed down hotel room rates. In order to remain competitive within a constantly evolving market with greater competition, hotels are under pressure to be more innovative and diversify their product and services to appeal to a wider target market.

China-wide occupancy rates in five-star hotels remained unchanged year over year by the end of 2014, at 57.9 percent, Savills data showed. Despite signs of recovery, rates are expected to face further downward pressure this year due to the anti-corruption campaign and the resulting decline in revenue from government sectors. As a result of slower economic growth and a shift in consumer habits, RevPAR (revenue per available room) is expected to continue to decline in 2015, Savills predicted.

“With rising wealth, more diverse tastes and continuous improvement in the hotel/resort market and its supporting infrastructure, domestic tourism is expected to grow even more,” noted James MacDonald, head of Savills China Research.

“Operators are exploring ways to strengthen their brand in China not only for the sake of their China market share, but also to secure partnerships with local developers as they go overseas and capture a share of the increasing outbound market.”

Shanghai:
Supply is increasing, occupancy rates strong at three- and four-star hotels

As one of China’s main economic centers, Shanghai has long been a major gateway to China for businesses and travelers alike. As a result, the hotel market recorded rapid development in the late 1990s and early 2000s as international brands looked to capitalize on the city’s growth. A surge in supply was seen in the years leading up to 2010 as the World Expo added credibility to Shanghai as a top destination for large-scale international events.

International sporting events and the development of year-round attractions such as China’s first Disney resort and Oriental DreamWorks Studios should continue to draw in tourists and business travelers throughout the year. Compared to the bottom of the market, RevPAR at three- and four-star hotels was roughly 30 percent higher in 2014, compared to being just 11 percent higher in the five-star segment.

Sanya:
Domestic tourists just love the place

Sanya is China’s most developed tourism destination. International tourists to Sanya peaked in 2011 but fell by 19.4 percent in 2014.

While this trend is set to continue, this is not a big loss for the Sanya market, however, as domestic tourism (which accounts for 97.1 percent of all tourists to Sanya) continues to grow at a fast pace, exceeding 13 million person times in 2014, a year-on-year rise of 11.3 percent.

Sanya boasted the highest five-star ADR (average daily rate) in China at 1,397 yuan (US$218) in the fourth quarter of 2014, up 23.1 percent year on year and up 7.9 percent from the fourth quarter average during 2011 to 2014.

With a large number of projects coming onto the market in the next few years, five-star ADRs could see a lift as a significant portion of these are internationally renowned, luxury brands.

Mice


 

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