China’s lodging industry is showing signs of recovery. Hotels across the country’s primary cities have reported consecutive monthly growth in revenue per available room (RevPAR) so far this year.
Shanghai and Shenzhen hotels’ RevPAR expansion has primarily been driven by rising room rates. This is probably because of limited supply amid increasing hotel demand at these financial hubs.
Both cities combined have only 15 percent of China’s total hotel room supply, according to hotel data research firm STR Inc.
In contrast, Beijing hotels’ occupancy growth has outpaced the growth in room rates. That is possibly because demand may finally be aligning with the abundant supply added during the 2008 Olympics.
While China’s economic outlook may be challenging, it has not stopped global hotel operators such as Hilton, Hyatt, Marriott and Starwood from expanding their development pipeline in the country.
Companies are betting on a long-term view that the country’s burgeoning middle class and increasing foreign arrivals will boost hotel demand.
Operators have shifted their attention to mid-scale or limited-service segments, as luxury hotels have a strong presence in the country’s primary and secondary markets.
They hope to introduce new brands like Hyatt Place and Hampton Inn across multiple locations.
The target clientele would be the large number of price-conscious Chinese travelers that would like to stay at a hotel with a global brand versus a local one.
Hilton has confirmed that 52 percent of its China deal signings in 2015 are in the limited service segment, up from 17 percent last year.
The views expressed in this article are those of Margaret Huang, an analyst at Bloomberg Intelligence.
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