China’s hotels sector is poised to benefit from Beijing’s domestic consumption push

Despite the fact that China’s GDP growth in 2018, at 6.6 per cent year on year, was the slowest in 28 years, the country’s hotel sector saw robust growth. A growing middle-class population and a government policy to boost domestic consumption ensure positive long-term prospects for the hospitality market.

Tourism continued to be an important growth engine for mainland China’s economy. In 2018, the domestic tourism industry contributed about 9.94 trillion yuan (US$1.47 trillion), or 11.04 per cent, to the GDP. The vibrant tourism market has generated huge opportunities for the hotel industry, as international hotel operators continue to expand in China.

Shanghai, Hong Kong and Macau lead the charge

Among all major cities, the tourism boom has driven stellar performance in the hotel markets of Shanghai, Hong Kong and Macau in 2018.

The Shanghai hotel market reached another peak since the World Expo in 2010. The surge in hotel demand was mainly attributed to the successful debut of the China International Import Expo in November 2018, which attracted more than 800,000 visitors to the city, especially to the Hongqiao central business district. With huge hotel development potential underpinned by the opening of new theme parks and large-scale events, operators and investors are optimistic. This is evidenced by the 17 luxury hotels, totalling 3,902 rooms, that opened in 2018.

The record-breaking tourism arrivals in Hong Kong, reaching over 65 million, up 11.4 per cent year on year in 2018, has provided impetus for growth of the hotel sector in the city. As the number of overnight visitor arrivals increased, the average daily rate (ADR) and occupancy rate of hotels have also improved. The ADR of high tariff A hotels picked up 4.1 per cent year on year to HK$2,152, and occupancy rate rose 3 percentage points year on year to 89 per cent in 2018. In 2019, the high tariff A hotel supply is expected to surge, with 14 hotels expected to open, providing a total of 2,650 rooms.

Macau recorded 7.2 per cent year-on-year growth in the number of international overnight visitors, which helped boost local hotel demand. The hotel occupancy rate for the full year of 2018 was 91.1 per cent, up 3.9 per cent year on year. The ADR for five-star hotels also increased 4.1 per cent year on year. Many new hotel projects are in the pipeline, such as the 19 new hotel projects under construction, and the 29 projects in the planning stage at the end of 2018. The completion of the new north airport terminal and the opening of the Hong Kong-Zhuhai-Macau Bridge, will improve regional connectivity and boost tourism, as well as the gaming industry.