The launch of the free-trade zone in Shanghai last month will not only give a boost to property prices, but also create much-needed custom for business hotels at a time when the city is suffering from a decline in tourist arrivals.
The city's inbound tourists last year dropped 2.1 per cent year on year to 8 million, of whom foreign visitors decreased 2.4 per cent to 6.3 million.
Currently, high-end hotels with international operators are limited in the free-trade zone. They include the Sheraton and Crowne Plaza in Waigaoqiao, Crowne Plaza in Lingang and Ramada at Pudong Airport.
Sam Xie, research director at CBRE Shanghai, said the Sheraton Waigaoqiao's occupancy rate jumped to more than 80 per cent last month, following the formal inauguration of the free-trade zone, from 20 to 30 per cent three months ago.
"The demand came from both guests attending the ceremony and business owners registering companies in the free-trade zone in Waigaoqiao," he said. "There are definitely opportunities for international hoteliers, given the current limited supply and the increasing number of financial and service companies entering the zone."
Xie said he believed the establishment of the free-trade zone would be positive for the luxury hotel sector as the pilot scheme would attract more foreign and domestic investment into Shanghai and accelerate the city's development towards an international gateway city and financial centre.
Since the proposal to create a free-trade zone was announced in July, property prices in the surrounding area had risen 15 to 20 per cent, compared with a 10 per cent gain in the overall Shanghai market, said agents.
The 28-square-kilometre free-trade zone includes Yangshan Bonded Port Area, Wai Gao Qiao Bonded Area (containing Wai Gao Qiao Bonded Logistical Park Area) and Pudong Airport Comprehensive Bonded Area.
Rosewood Hotel Group believes mid-tier hotels will benefit the most from the free-trade zone.
"Our Pentahotels brand is a good fit as it suits the typical business person going to the free-trade zone. They are looking for a hotel that is affordable, well set up for the basics like Wi-fi, offers a great room and which has public space suitable both for business and relaxing," said Symon Bridle, chief operating officer at Rosewood Hotel, the hotel management arm of New World Development.
Rosewood Hotel, formerly known as New World Hospitality, owns 40 hotels under three brands in 15 countries. Its Pentahotels brand - offering affordable accommodation to leisure and business travellers - operates 16 hotels in Europe and Asia, with a target to expand to 80 globally by 2020.
"This is more of a mid-tier market, and demand for higher-end or luxury hotels will not be so prevalent," said Bridle.
The group operates a Pentahotels in Shanghai and Beijing.
Thomas Lam Ho-man, a director at Knight Frank in China, said the free-trade zone was dominated by domestic-brand budget hotels.
In addition to Shanghai Disneyland, which is slated to open at the end of 2015, the zone could potentially attract new hotel establishments involving international brands.
"The development of three- and four-star hotels will also be robust and cater for increasing demand from business travellers," said Lam.
By 2015, the number of tourist arrivals in Pudong could reach 45.2 million and the total tourism revenue would amount to 52.3 billion yuan (HK$66.12 billion), a Knight Frank report said.
Tourists would continue to grow to 103.8 million in 2020 and contribute 105.2 billion yuan, heralding a golden decade of tourism for Shanghai, the report said.