He said tier-two and tier-three cities are benefiting from massive infrastructural spending, while the massive hotel expansion ahead of the 2008 Olympics saturated the Beijing market.
"What impact will the Olympics have on Beijing’s hotel market? Jones Lang LaSalle Research has been tracking the impact of the past five Olympics events and our research have revealed that host cities have historically experienced an Olympic ‘spike’ in rates during the event year with a gradual softening in the following years. In the case of Beijing, we believe the extent of any softening in rates will be mitigated by the fact that there is another major international event, i.e. the Shanghai World Expo 2010 within a relatively short time frame. The continued momentum of business that is expected to take place in the political capital Beijing and the commercial capital Shanghai will help to sustain visitors volume which should positively benefit both cities."
Summing up the current situation, Andreas Flaig said from 2006 to 2008, the number of hotel rooms doubled in Beijing and will grow another 23% through 2011. That buildout has pushed occupancy rates in Beijing to 47% for five-star hotels, and 50% in the four-star market.
He said, "Once you drop below 50% occupancy, then you start to seriously impact the profitability of a hotel. We are way off the 75-ish occupancy the city has enjoyed before."