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Luxury hotels May 2014

Since the end of 2012, the central government has issued a series of new policies and regulations, that have in the main targeted anti-corruption and that have put high-end hotels in China under the unprecedented pressure as government departments have cut back on their entertain and travel spending.

The knock on affect of 2012 meant that the Chinese hotel market suffered throughout 2013. However, these regulations also helped the hotel sector gradually return to a more rational condition and in fact, some international brands have seen them as an opportunity rather than challenge. Foreign acquisition and big brand annexation of smaller brands, all helped the industry mature.

The trend for 2014

The regulations are still taking effect and there is an element of the survival of the fittest taking place as both new and old hotels face greater challenges. Some investors are likely to choose to back out of the industry and some hotels will be shut down or be sold off. For example, some of the hotels in Shanghai have been forced to transform into office buildings, or to convert to long term served apartments because they were losing money. This year there is also the opportunity for some of the international hotel operators to integrate more of their brands as a result.

However, the recovery of the hotel industry may exceed people’s expectations, as the Chinese travel market continues to heat up, and many hotel brands become more optimistic about the performance of market. According to incomplete statistics, from January to April 2014, sixty four 3 to 5 star hotels officially opened in Mainland China, offering a total of 18,094 rooms.


Hotels opening distribution

Based on the hotel opening geographical distribution as shown below, from January to April 2014, there were 22 regions in which new hotels opened, the coastal areas being the most active. During this period, 9 hotels opened in Sichuan province making it the No1 in the country, and accounting for 14% of all new hotels. Chongqing, Guangdong, Shandong, Zhejiang and Fujian also contributed at least 4 new properties.

In terms of the class of hotels, it is surprising to see that during this period, 51 or 79.5% of all the newly opened hotels were 5 star, 12 or 18.6% were 4 star and only one 3 star hotel opened in Shijiazhuang, Hebei province.

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Aggressive expansion

As the first international hotel group entered China in 30 years ago, and the Intercontinental Hotel Group are the biggest international employers of the Chinese hotel industry. The group has already opened over 200 hotels in Greater China and has another 180 hotels under construction. According to the current plan, 100 of the 180 hotels will be opened within 3 years, and the group expects China to be as big as the US market in 10 years time.

Frits van Paasschen, the Global CEO of Starwood, announced in Shanghai in April 2014 that over the next two years the China strategy of the brand is to open a further 50 new hotels. Although the anti-corruption regulations have had a great impact on the hotel industry, he is still looking forward to the growth of the market as it has the largest number of wealthy consumers anywhere in the world who are seeking lifestyle enjoyment now. ‘70% of the new hotels will be open in second tier or third tier cities’ as he said.

Sheraton Hotels and Resorts released its 2014 strategy in March which shows that it will add a further 35 hotels next year to achieve breakthrough growth. Among them, nearly half of the new hotels will be located in China meaning that there will be an opening of a Sheraton Hotel almost every three weeks across the Mainland!


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