Investment in China’s luxury hotels set to slowdown
China's star-rated hotels have resorted to voluntarily lowering their star ranking and selling off assets t survive.
China's star-rated hotels hard hit with total losses of RMB2.1 billion in 2013 have resorted to voluntarily lowering their star ranking and selling off assets. Jinjiang Group sold the Shanghai Galaxy Hotel for RMB1.26 billion in early 2014, for example.
Recently Ningbo Radisson Plaza Hotel became the first five-star hotel to file for bankruptcy. Earlier this year, the Soluxe Hotel Group has listed the Qingdao Soluxe Spa Hotel for sale at RMB122 million.
Some 174 hotels ranked three stars or above are looking for buyers. Their geographical distribution is as follows:
City or region
Number of hotels that sold off assets
Percentage of total local hotel asset sales
Sichuan and Chongqing
Despite the hardship for five-star hotels, a new wave of luxury hotels are still entering the markets. For example, Ningbo has opened more than 20 new five-star hotel, adding to 22 existing hotels in that class, and 30 more are in the pipeline, giving Ningbo more than 70 five-star hotels in total.
About 153 five-star hotels opened in China in 2014, with 12 in Guangdong province. Guangzhou alone has 217 star-ranked hotels with 23 five-star hotels, including Jumeriah Guangzhou Hotel and the Wanda Realm Hotel Guangzhou opened in 2014.
“The investment cycle for high-end hotels has a similar trajectory as real estates, albeit with a one to two years time lag. As the real estate market slows down, the high-end hotel market will also cool,” China Lodging Group CEO Qi Ji said.
Hotel media site Meadin.com' CEO Yi Qiao said: “The jump in hotel asset sales over the last two years is the inevitable result of a prolonged oversupply in the hotel market. Many star-rated hotels are reliant on state officials as their customer base leading to unhealthy growth. This is in contrast to the robust mid-range and economy hotel markets that cater to the general public."
Independent hotels and small-scale hotel chains are also starting to form alliances to band together for survival. For instance, Plateno Hotel, Home Inns and China Lodging hotel groups announced they are forming an alliance and opening up their respective loyalty programs.(Translation by David)