Low occupancy doesn't curb rush to build hotels

PUBLISHED : Monday, 25 June, 2012, 12:00am
UPDATED : Monday, 25 June, 2012, 12:00am


The world's top hotel operators have brushed aside global economic woes and China's stuttering growth rate as they vie with one another to build the biggest hotel networks on the mainland.

Laying down a challenge to competitors last week, Arne Sorenson, president and chief executive of Marriott International, said the US-based hotel chain would open one hotel every month on the mainland over the next three years.

Sorenson (pictured), who was addressing the first-ever meeting held by Marriott in Beijing for securities analysts, said the expansion programme would double the chain's mainland hotels to more than 100 by 2014.

At about the same time, Starwood Hotels and Resorts, operator of Sheraton and Westin hotels, was giving media representatives at a news conference in Shanghai its highly upbeat view of the outlook for the mainland's hospitality sector.

The group said it planned to be running 200 hotels across China in the next three to four years.

And the world's biggest hotel operator, InterContinental Hotels Group, said it expected China to replace the United States as the world's largest hospitality market in 2025 and that it would build an additional 150 hotels on the mainland and in Hong Kong and Macau within the next five years.

However, the mainland boom story has another side, and occupancy rates have been the lowest among all Asian countries excluding India - at just 58 per cent in the first quarter of this year.

The rate for five-star hotels was even lower, at 53 per cent, and the situation is expected to get worse, as the number of five-star hotels will exceed 1,000 in 2015, compared with 645 at present, industry experts said.

'There are already signs of a declining room rate and occupancy in the industry,' said Zhao Huanyan, chief knowledge officer of Hotelsolution Consulting, a Shenzhen-based consulting company.

But helping to drive hotel construction despite these warning signals are property developers and local governments. Since central and provincial governments have taken tough measures to curb demand in the residential markets, many local property developers are turning to commercial real estate development.

Developers believe that a hotel flying the flag of a world brand will boost the profile of a commercial complex, and it is also easier for high-end hotels to obtain approval and tax incentives from governments of mid-tier cities, who see the presence of the hotels as drawcards for visitors and other investors.

Around the world, Zhao said, operators typically segmented their hotels into those that were managed, franchised, leased or self-owned. On the mainland, management is the most popular business model, which means the operators manage the hotel in return for a fee.

In some mainland locations, however, this limited-risk model has come under strain.

In Shenzhen's Long Gang district, three five-star hotels were built before 2011 in preparation for the World University Games held in the city in August last year. Since the games, they have been operating at an occupancy rate of just 30 per cent.

Ningbo, Zhejiang, is another example. The mid-tier city is expected to be home to no fewer than 50 five-star hotels next year - more than the number of top hotels in Shanghai.

'It's apparent that the hotel room supply in some parts of China is already excessive,' Zhao said.

'But this has not stopped the big-name hotel groups from speeding up their expansion in China.'