Tuesday, 10 January 2012

Spectre of ‘ghost hotels’ haunts China

5-star inns rise, but there are few guests

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Guanyu 道 said...

Spectre of ‘ghost hotels’ haunts China

5-star inns rise, but there are few guests

By Grace Ng
09 January 2012

The rural county of Tonglu has a handful of scenic spots, like the grandly named Yaolin Wonderland Cave, and about 400,000 residents.

While this hardly makes it a bustling holiday hub, the town in coastal Zhejiang province reportedly plans to build at least eight four-star or five-star hotels in the coming years.

It is not clear how Tonglu will find enough tourists to fill all the new rooms. But it is hardly the only Chinese locality caught up in a widespread building binge of top-grade inns - even as two in five rooms across China sit empty.

China’s property boom has spawned ‘ghost cities’ where there are houses but few residents.

Now, the spectre of ‘ghost hotels’ is scaring the trade. Hundreds more luxury hotels are being built in spite of China’s average occupancy rates being the lowest in Asia, with the exception of India.

Only 61 per cent of rooms were filled in the first nine months of last year, according to data by STR Global, a consulting and research group, which tracked 15 countries. This compared with over 80 per cent in Singapore and Hong Kong.

For five-star hotels, the rate may be even lower. China Tourism Research Centre professor Yang Honghao reckons that it could be less than 60 per cent, partly because of a glut.

‘Right now, China has 500 certified five-star hotels. There are also hotels in the process of being constructed or are yet to be certified. So the total may be about 1,000,’ he said.

‘As to whether there will be a bubble in future, if construction continues at this current pace, this may bring extremely great pressure (for the hotel sector).’

One driver of the boom is a rush by international names like Hilton, InterContinental and Hyatt to expand across China, which is the third-largest tourism market in the world after France and the United States, according to United Nations World Tourism Organisation data.

While the top two markets boast more travellers with deeper pockets and higher hotel room occupancy rates than China, they cannot match China in size - and growth rates.

The number of internationally branded hotel rooms in China climbed 62 per cent over the past five years and will soar another 52 per cent by next year, Jones Lang LaSalle Hotels estimates.

These global brands can expand so swiftly partly because they just manage the hotels, while local developers eagerly build the hotels and bear the costs themselves.

‘Many high-end hotels are built as complements or additions to property projects,’ said Prof Yang. In some places, the hotels ‘may not even be built for the purpose of making profits’, he added.

This is because builders in some cities may have already recovered their investment from mixed-use developments - comprising apartments, malls and offices - that yield sales and rent, he explained.

So luxury hotels may be merely prestige projects. Indeed, every local government, no matter how small its town, wants five-star hotels.

Besides Tonglu, nearby areas such as Chun’an county are planning to build more five-star hotels, reported Chinese hotel news portal Huicong Hotel Web. Chun’an already has six top-grade hotels - including the Sheraton and Hilton resorts overlooking its Thousand Island Lake.

Meanwhile, smaller cities like Ningbo are striving to outdo bigger cousin Shanghai, which has 40 five-star hotels. Ningbo and its surroundings may have as many as 50 luxury hotels by next year, estimated news portal Chinanews.com

The website questioned how the city would be able to handle so many when its occupancy rate was about 50 per cent in 2010.

The vacancies may be worrying for hotel operators trying to reverse a four-year slide in the profitability of five-star hotels in China between 2006 and 2009, according to data by China Tourist Hotel Association and Horwath HTL.

Guanyu 道 said...

But travellers are rejoicing as many five-star hotels cut prices to boost occupancy. Rates fell by 2.5 per cent in the third quarter of last year, according to the China Tourism Association.

Such declines mean that five-star hotel room rates in China are just a quarter of those in major European capitals, Swiss-based luxury hotel group Kempinski’s China president Michael Henssler told China Daily last year.

But as China’s tourism continues to drive up demand for accommodation, hotel occupancy rates may recover, noted Ms Fiona He, a Beijing-based executive from STR Global.

‘The growth in supply of hotel rooms peaked a few years ago and is now entering a stabilising phase,’ she said.