|Chinese hotel market is much more than new supply discussion.|
Thursday, 8th August 2013
Source : Nigel Summers - Horwath HTL North Asia
A brand new report released highlights the key trends in the Chinese Hotel Market.
Huge Supply... Some Easing, Some Not: The huge amount of new supply entering many markets in China is well known. There are several markets where the pipeline of new properties shows no signs of stopping and these are going to experience distress and most likely increased disputes being owners and operators.
However, for a number of cities, the supply onslaught is reaching its peak and as it gradually recedes, the substantial demand growth that China’s hotel sector exhibits should lead to quite quick market recoveries over a 2 to 5 year period.
Time for ADR Increases: A historic challenge for China’s hotel industry has been its low average daily room rates relative to other international markets and the quality of the product being sold.
However, the government is now trying to shift the economy to a more consumption led model and this encompasses efforts to increase wages. At the same time, vast sections of China’s middle class are reaching a point where they have acquired apartments, electronics, cars and other tangible goods and so spending is likely to move to more intangible items such as travel and leisure.
These transformations can over time support average rate increases that could dramatically boost the profitability of the sector.
Higher Wages but Fewer Staff: Of course, many operators are also concerned about the impact of wage increases on profitability levels but in our view these worries are exaggerated. Staffing levels in China are well above more developed markets and there is huge scope for reductions. As a whole, we expect fewer better-paid staff actually to benefit hotels’ bottoms lines as well as the customer experience.
Not Just Rooms: The hotel business in China is not just rooms. Several international and domestic operators are strategically focusing on the food and beverage side of the business and managing to generate very significant revenue levels that often exceed rooms as well as healthy operating margins.
Other groups are increasingly focusing on hot spring and spa revenues very successfully while another just emerging trend is to put considerable resources behind recreational and entertainment facilities targeted towards local residents.
The Cities of One Million People: While many first tier, second tier and even third tier cities are becoming saturated with hotels, there are still many lower tier cities that offer development opportunities. These markets, however, are not suitable for luxury products despite the wishes of local governments.
Click HERE to download a copy of the report.