As hotel companies continue the unprecedented rush to develop properties in China, new analysis shows that the hotel occupancy rate in China to be among the lowest in Asia.
“Hotels in some markets of China are clearly oversupplied in the next three to five years, and they won’t be generating good returns,” said Nigel Summers, Hong Kong-based director at Horwath Asia Pacific, which tracks the hospitality industry. “China has had a very strong demand. The question is whether the increase in demand is going to be big enough to handle all the new hotels.”
Sixty-one percent occupancy is not a strong indicator, however it is must be taken in context.
According to USA Today, China had 14,100 recognized hotels (those with at least one-star rating) in 2008, nearly double the 7,400 recognized hotels in 2001. By the end of 2012, the number of recognized hotels in China is expected to top 18,000.
Given the rapid supply expansion and downward economic indicators, it’s quite remarkable that the country was able to maintain its 61% occupancy rate so far in 2011 – flat to the previous year.
And therein lies the hidden opportunity behind the “low” hotel occupancy numbers in China.
Hoteliers were able to expand supply at a pace roughly equal to the increase in demand. In other words, expansion in China has done nothing to dilute the market. To the contrary, international brands are reporting 23% growth in RevPAR, with continued upward pressure on both occupancy and rate.
Despite the shock value of “low occupancy” headlining the Bloomberg News report, this RevPAR growth speaks volumes to the hidden opportunity presented by both international and domestic travel in China and why so many are bullish on China.