_China’s hotel sector poised to benefit from domestic consumption boost

Despite the fact that China’s GDP growth in 2018, at 6.6% YoY, was the slowest in 28 years, the country’s hotel sector saw robust growth. The growing middle-class population and the government’s policy to boost domestic consumption ensure positive long-term prospect of China’s hospitality market.

April 18, 2019

Tourism continued to be an important growth engine for China’s economy. In 2018, the domestic tourism industry contributed about RMB9.94 trillion, or 11.04%, to the country’s GDP. The vibrant tourism market has generated huge opportunities for the hotel industry as international hotel operators continue to expand in China.

Shanghai, Hong Kong and Macau among best performed markets

Among all major cities in the Greater China region, Shanghai, Hong Kong and Macau had the best hotel performance in 2018. The Shanghai hotel market reached another peak since the World Expo in 2010. The surge in hotel demand was mainly attributed to the successful debut of the China International Import Expo in November 2018 which attracted more than 800,000 visitors to the city, especially to the Hongqiao CBD. With the huge hotel development potential underpinned by the opening of new theme parks and large-scale events, operators and investors are optimistic. This is evidenced by the 17 luxury hotels (3,902 rooms) opened in 2018.

The record-breaking tourism arrivals in Hong Kong, reaching over 65 million, up 11.4% year-on-year (YoY) in 2018, has provided impetus for growth of the hotel sector in Hong Kong. As the number of overnight visitor arrivals increased, the average daily rate (ADR) and occupancy rate of hotels have also improved. The ADR of High Tariff A hotels picked up 4.1% YoY to HK$2,152, and occupancy rate rose 3 percentage points YoY to 89% in 2018. In 2019, High Tariff A hotel supply is expected to surge, with 14 hotels scheduled to open, providing a total of 2,650 rooms.

Macau recorded 7.2% YoY growth in the number of international overnight visitors, which helped boost local hotel demand. The hotel occupancy rate for full year 2018 was 91.1%, up 3.9% YoY. The ADR for five-star hotels also increased 4.1% YoY. Many new hotel projects are in the pipeline, such as the 19 new hotel projects under construction, and the 29 projects in the planning stage by the end of 2018. The completion of the new north airport terminal and the opening of the Hong Kong–Zhuhai–Macau Bridge, will improve regional connectivity and boost tourism, the gaming industry, and the MICE industry in Macau.

The increasingly sophisticated Chinese consumers are challenging traditional hotel operations

Chinese consumers are increasingly sophisticated, driving new trends and demands in tailor-made, niche and exclusive hospitality products and services. To stay competitive and relevant in the market, it is crucial for hotel operators to be agile, innovative and react swiftly to answer for the market changes. In a recent example, two major international hotel groups have announced to roll out technological upgrades at their properties throughout the country. The InterContinental Hotels Group will team up with Baidu to introduce artificial intelligence-supported Smart Rooms in China. Marriott International will also team up with Alibaba Group to launch facial recognition technology for check-in.

The increasingly influential new generations are also reshaping China’s hospitality landscape in recent years, as they have become one of the dominant forces to drive domestic tourism consumption. Compared to the older generations, young Chinese are more tech savvy, more demanding for unique personal experiences. Hotel operators should be prepared to meet new challenges brought by the emerging consumer groups.

What can we expect in 2019 and beyond?

2019 is set to be a year of change and challenge for China’s hospitality industry. Looking ahead, while global economic uncertainties linger which could affect consumer sentiment, Chinese economy has proved to be resilient.

Regardless, China’s tourism industry is growing fast on the back of rising disposable income and middle-class consumption upgrading. Coupled with the government’s efforts to boost local consumption to rebalance China’s economy by putting it on a more consumption-driven growth path, and major strategies, such as the Belt and Road Initiative and Greater Bay Area Plan, demand for hotel accommodations, especially the five-star hotels in the country is expected to remain robust and grow steadily in 2019. Despite a more competitive environment, the strong domestic tourism demand and sustained influx of foreign tourists are offering hotel owners and operators reasons to be optimistic.

For more information contact: david.ji@hk.knightfrank.com

Greater China Hotel Report: https://content.knightfrank.com/news/13086/6390-article-1.pdf