Sentiment bullish on China's hotel sector
Growth in occupancy rates raises hopes for market despite concerns over glut in industry and state crackdown on corporate spending
China's hospitality sector sees a ray of hope after hotels in major cities reported a mild growth in occupancy rates last year, allaying long-simmering concerns of a glut in the industry.
"China is a wonderful place and a great market for us to tap," said Ji Qi, the chairman and chief executive of Huazhu Hotels Group, which operates more than 1,800 hotels across 280 Chinese cities. "Demand for cosy hotel rooms and high-quality services is increasing, and hotels that can make visitors feel safe, reliable and comfortable will make profits."
A supply-demand imbalance has weighed on China's hospitality sector since 2010 as more hotel rooms came on the market amid a lack of mega international events such as the 2008 Beijing Olympics and Shanghai World Expo.
The Communist Party's austerity campaign from 2013 exacerbated an already bearish sentiment since government officials and state-owned company executives have cut back on spending during business travels.
However, the occupancy rate of Beijing-based hotels still increased to 63.6 per cent last year from 59.5 per cent in 2012, while in Shanghai, the rate climbed to 71 per cent from 66.2 per cent, according to JLL.
"The purchasing power of China's middle class must have been underestimated when the gloomy sentiment dominated the hotel market," said Mandy Li, a senior vice-president at JLL's hotels and hospitality arm. "The upward momentum looks set to continue and the long-term outlook appears to be bullish."
Internet services firms, buoyed by increased interest in online shopping and digital banking products, had also become a major driving force for the hospitality sector as employees travelled more around the country to develop business, Li added.
Before China opened up its market in the 1980s, its hotels were known for their poor service.
"Those days are gone and Chinese people's tastes are changing quickly," said Ji, who established economy brands such as Home Inn and Hanting. "Millions of people who had that experience would like to have good and affordable hotel services as they are richer now."
Last month, Huazhu formed a long-term alliance with Accor, a leading French hotel operator that owns brands including Sofitel and Ibis.
The two groups will pool their resources to expand their presences in China, the world's largest travel market.
Ji said at least 500 new hotels were in the pipeline over the next five years.
A general manager with a Shanghai-based five-star hotel said affordability held the key to hotels' successes.
Tariffs of about 500 yuan (HK$624) per night at a four or five-star hotel would be attractive to millions of middle-class travellers, especially during the summer and winter holidays, which have become the high seasons for the hotel industry, Ji said.
"My son would rather laze around in the hotel room than go sightseeing when we travelled to Beijing last year," said Reno Chen, a clerk at an American firm, underscoring Ji's emphasis on comfort.
