The opening of new high-end chain hotels has accelerated in mainland China’s major markets since 2007.
Editor’s note: This article was originally published on WeChat in both Chinese and English. To read the Chinese version, click here.
SINGAPORE—The continuing rise of new supply in the Chinese high-end hotel market raises three questions:
• Will the occupancy of those hotels begin to wane?
• What are the top markets that have attracted high-end hotel investments?
• What are the hotel brands of these new openings?
The STR analyst team answers these questions and more in this article. (STR is the parent company of Hotel News Now.)
* Note: In this article, high-end hotels are defined as hotels that are in upscale, upper-upscale or luxury chains. For more information about hotel brand classification, visit str.com.
1. New openings remains robust in major Chinese markets
In the past 12 years (2007-18), approximately 1,100 high-end chain hotels comprising nearly 330,000 rooms opened in major Chinese markets. This amount is equal to 317.6% of the existing supply of high-end hotel rooms prior to 2007. Additionally, the annual supply of new high-end hotels remains robust, with more than 28,000 rooms on average being added in each of the past 12 years. It is worth noting that the average room count of new hotels decreased slightly (from approximately 300 to 260) in the past two years, in response to structural changes and reforms in tourism supply and demand (see chart below).
Despite the rise in supply, occupancy has not been negatively impacted, as data suggests occupancy of high-end hotels has grown every year since 2013 (see chart below).
2. Shanghai most attractive for high-end hotel development
The top 10 markets for new hotels (shown in the chart below) appear to be a mix of urban and leisure, first- and third-tier cities, inland and coastal. It’s an interesting mix that suggests there is no one single market condition that will attract high-end hotel investments. Rather, investment is drawn from a confluence of factors, including business and leisure travelers’ demand volume, large events, local investment policy and market GDP.
As the capital city of China, Beijing has never lost its power to attract high-end hotels since the grand opening of the first international brand hotel in 1982. In 2007 and 2008, to prepare for the first-ever summer Olympics held in China, 24 high-end chained hotels, representing 8,500 keys, were added to the market.
Shanghai is always under the spotlight in terms of hotel investment. The volume of high-end rooms opening peaked in 2010 in Shanghai, with nearly 6,000 rooms being added. In the same year, Expo 2010 was held in this city from 1 May to 31 October. By the end of the Expo, more than 73 million people had visited from 192 countries.
3. Large companies dominate the development pipeline
Hilton Worldwide, Marriott International and Intercontinental Hotels Group account for 70% of all high-end rooms in the active pipeline for mainland China.
By brand, DoubleTree by Hilton has the most rooms in the active pipeline for mainland China, followed by the full-service Marriott and Hilton brands. The majority of rooms in the pipeline are expected to open within the next three years (see chart below).
Looking at hotels by chain scale suggests a shifting trend in future openings. Of the 232,266 rooms in the pipeline, about 100,000 (or 51.7% of the current room supply of upscale hotels) are from upscale chains (see chart below). Although that share is relatively small compared to that of upper-upscale chains, it marks a 10.5% year-over-year increase in upscale hotel rooms in the pipeline.
Despite supply increases in the Chinese high-end hotel market, occupancy has remained stable, primarily driven by a healthy increase in demand. Markets with strong business/leisure demand, large events/conventions, and promising GDPs continue to attract high-end hotel investments.
Moving forward in 2019, Chinese hoteliers should closely monitor hotel pipelines and demand trends in their local markets to be aware of changes in the competitive landscape and to respond quickly to future opportunities and challenges.
Jesper Palmqvist is the area director for Asia Pacific region at STR. Christine Liu is regional manager of North Asia for STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.