A look at performance data for mainland China hotels shows declining occupancy, as supply outpaces demand.
HENDERSONVILLE, Tennessee—The Chinese hotel industry fluctuates with the general economy and as the years of hyper growth make way to more moderate, but still healthy, GDP growth, the hotel industry feels the impact.
For the first time since 2016, STR data shows mainland China supply growth outpacing demand growth, leading to occupancy declines. Annualized occupancy growth has now slowed for four of the five months through May, which is remarkable given the healthy demand increases of more than 3% this year, 4.6% in 2018 and 7.9% on 2017. At the same time, supply growth, which topped 5% in 2014 and 2015, slowed somewhat to 3.9% in May. (STR is the parent company of Hotel News Now.)
China class performance varies
Since the country-level data covers some 16,000 hotels with just under 3 million room nights, is it worth parsing the data by subgroupings to understand what drives the overall performance. Our data shows clearly that Chinese hotel developers had a strong appetite for higher-end hotels, and combined supply growth for these classes was well above the national average, topping 7% in the years prior to 2017.
Of course, room supply growth is only sustainable if it is matched with equal or stronger demand growth, and our data seems to point to high-end demand growth slowing rapidly, leading to occupancy deterioration.
City supply growth varies widely
A slightly different way to slice Chinese hotel development activity is to follow the common approach of breaking out the cities by tier. This is not an official government designation but is widely accepted to be a sensible way to delineate markets and opportunities in them. The following table lays out the Tier 1 and New Tier 1 metro areas, as designated by Chinese financial magazine Yicai Global. There are a total of 338 cities ranked between tiers 1 and 5.
That said, the demand patterns that seemed to justify the strong supply increases over the last few years are rapidly slowing.
We will continue to monitor the supply and demand balances by class and market tier and report on the rapidly changing Chinese lodging environment.
This article is based on the presentation by Steve Hood at the China Tourism Forum 2019 – USA in Philadelphia in July 2019 cohosted by Temple University and The Hong Kong Poly University. Building on more than a decade of success, this year’s China Tourism Forum was held outside China for the first time, and attracted nearly 180 participants. Christine Liu, STR Market Manager – China, and TingTing Duan, STR Research Analyst, contributed deep market insights.