Luxury hotels in China are reportedly suffering from dropping demand as business travellers continue to opt for more economical accommodation amid the financial crisis.
According to statistics from Jones Lang LaSalle Hotels, transaction volumes of Chinese hotels fell from $1.6 billion in 2006 to $1 billion in 2007 to $0.3 billion in 2008.
The top five luxury hotel markets at the Chinese mainland (Sanya, Beijing, Shanghai, Lijiang and Tianjin) had an oversupply in 2008.
The result of oversupply is perhaps not too surprising as during the last four years, the supply of five-star hotels in these cities has increased by 15%, whilst demand has only grown by 10%.
Jones’ senior vice-president Lily Ng said, "There isn’t enough demand for top hotels in front-line cities such as Beijing, Shanghai and Guangzhou, as these markets are saturated. And the concern in the second-tier cities is whether local consumption can cover the high investment”
During May, the occupancy rate at Shanghai’s five-star hotels dropped to 44.9% from 56.3% at the end of last year.
It is speculated that Beijing is suffering from a post-Olympics slump, unlike other host cities which have generally experienced a long-lasting momentum of visitors after the world event.
"Beijing hasn’t been that lucky. Incentive travel and MICE (Meeting Incentive Convention Event) business has been down in this economic downturn" Ng said.
Lily Ng said, "Both four- and five-star hotels are under tremendous pressure."
eTravel Blackboard reports that as major cities such as Beijing, Shanghai and Guangzhou suffer the most from the economic decline, industry insiders believe investors should now be looking at second-and third-tier cities for opportunities.