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Hotels forecast further growth

AN industry survey shows that most hotels in China expect business to grow this year despite some challenges such as rising costs and increased competition. They also anticipate MICE business to be a bigger factor in fattening bottom lines, writes Fei Lai.

One internationally branded hotel is expected to open in China every four days. It's hard to believe, but it is true.

China has one of the world's fastest growing economies and is an increasingly competitive hotel market, according to the newly released report "China Hotel Market Outlook 2011," produced by Jones Lang LaSalle Hotels and the China Tourism Hotel Association.

China's hotel industry is entering a new era as industry stakeholders and potential investors have started to evaluate the future of China's hospitality market.

During the first quarter of 2011, surveys were sent out to hotel association members. Among them, 255 responses from hotels representing a total of 73,259 guest rooms were received.

Amongst the hotels polled in the survey, 32.8 percent were in northern China, 27.8 in eastern China, 19.3 percent in western China, and the balance in the southern and central parts of the country.

Of the respondents, 45.1 percent had a five-star rating, 34.3 percent four-star, 6.5 percent three-star, and the remaining 14.1 percent were two–star, budget or non-rated hotels.

The survey collected hotel performance data for 2009 and 2010, as well as their forecasts for the full year 2011.

Reviewing the results of the survey, there was a visible improvement across the country between 2009 and 2011.

Hotel occupancy in the survey sample saw an increase from 55.4 percent in 2009 to 60.6 percent in 2010.

Helped by the macro-economic recovery and growth in demand, hotel room rates showed signs of an upswing with the average daily rate (ADR) in the sample increasing 3.8 percent in 2010 from a year earlier.

Reflecting the combined impact of occupancy and ADR growth, revenue per available room (RevPAR) increased 13.6 percent from 2009 to 2010.

Surveyed hoteliers expect performance to further improve this year, with occupancy estimated to reach 68.1 percent, and ADR and RevPAR to further increase 0.4 percent and 12.2 percent, respectively.

Outlook for 2011

Surveyed hotels were asked to elaborate on their outlook for occupancy, room rates, operating costs and competitive pressure.

More than 60 percent of the respondents anticipate occupancy and ADR to increase in 2011 although some respondents said they expect a decline in ADR in 2011. The difference in findings may suggest that while hotels are generally optimistic about revenue growth, the majority of the respondents (74 percent) are also anticipating an increase in operating costs. Among those, many are expecting costs to increase more than 5 percent, which may also explain why hotels feel the need to increase room rates and other prices in order to offset increasing cost pressures.

An overwhelming 86 percent of the respondents expect competitive pressure to increase in 2011. Among those, 48 percent attribute such increases to new hotels entering the market and 38 percent due to the declining condition of facilities.

The survey respondents also ranked the importance of each demand segment's growth propensity. The results, in order of importance were: corporate FIT (frequent individual travellers), MICE, leisure FIT, leisure group and long-stay.

In the survey, the hoteliers were asked to rank future challenges. The top six were: increases in energy costs, rising inflation, increase in operating costs, pressure on occupancy due to new hotel supply, rising labor costs and high staff turnover.

Lily Ng, executive vice president of Jones Lang LaSalle Hotels, says that the inclusion of the tourism sector as a pillar industry in the 12th Five-Year Plan (2011-2015) is a major milestone for the country's hotel industry.

"Together with the country's commitment to encourage domestic consumption, it will further support sustainable growth in demand for lodging and create long-term opportunities for hotel investors, owners and operators across the China market," Ng said.

Growing MICE sector

The rapid expansion of China's MICE market has become a key driver of lodging demand across China. Since MICE demand can provide relief for seasonal dips, many hotels are benefiting from gains in this sector.

Based on the latest available data from the International Congress and Convention Association, China's international meeting market grew at an annual average rate of 12.8 percent between 2000 and 2009. In 2009, China accommodated 245 international meetings and ranked ninth in the world. It ranked second in Asia Pacific after Japan.

The overall number of international meetings hosted in China has increased despite some fluctuations in recent years. As China's economy continues to expand and its global importance rises, China will continue to attract large-scale exhibitions and meetings.

As data from the ICCA show, gateway cities such as Beijing, Shanghai and Guangzhou of Guangdong Province offer mature infrastructure and expertise in hosting large events and have captured the lion's share of China's international MICE demand. However, cities such as Chengdu, Chongqing and Dalian are also seen as emerging on the scene.

As travel networks continue to expand, event planners are also exploring new meeting destinations. Based on a survey of meeting planners conducted by Jones Lang LaSalle Hotels in 2010, Hangzhou, Guangzhou, Lijiang, Nanjing, Sanya, Shenzhen and Xi'an were identified as the most popular emerging MICE destinations. As such, it is anticipated that MICE demand will play an important role in these markets in coming years.

The MICE industry also promotes activities in other industries, such as tourism and logistics, creating a "MICE economy." In order to promote local economic development, many cities have planned for MICE development. However, since MICE is a relatively specialized industry, the ability to create and deliver a destination to attract MICE demand depends largely on the availability of facilities, supporting amenities and service infrastructure. For this reason, an increasing number of hotels are now equipped with large meeting facilities, while the government builds newer and larger convention facilities. Considering many cities are also charting the same path, the potential for intense competition and redundant projects is rising. Therefore, proper planning and positioning are crucial to the healthy development of the MICE industry.

Meanwhile, according to a report by international property consultant Knight Frank, 2010 marked the end of a correction and the start of a recovery for China's hotel market.

Macau was the most active market in the first half of 2011, where three large-scale, five-star hotels were completed in the period, providing more than 4,000 rooms. Five hotels also opened in Shanghai, adding over 2,000 rooms to the city's five-star hotel room stock. Hotel expansions in Beijing and Hong Kong were comparatively less aggressive during the period.

Thomas Lam, head of research at Knight Frank in China, said the number of overnight visitor arrivals in Shanghai is expected to rise in coming years with the completion of major tourism projects and infrastructure projects.

Meanwhile, Guangzhou's position as the business and exhibitions center of Asia will be strengthened as Pearl River New City becomes a new central business district and Pazhou Island is developed into a recreational business district. Beijing, given its well-established international status for leisure and business, will continue to generate steady streams of visitors.

"Hotel markets in Hong Kong and Macau are expected to remain stable, as the cities are already well developed and offer unique competitiveness that cannot be easily substituted," said Lam.


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