China's Upscale Hotels Struggling

Mergers and Acquisition a Likely Trend in Second Half

The Olympic Games didn’t bring in the expected turnover for the hotel industry. According to statistics, during the 2008 Beijing Olympics, 5-star hotels in Beijing witnessed a 2.3% decline in occupancy over the same period last year, while Shanghai saw a 10.4% decline. Due to the financial crisis, hotels nationwide suffered further occupancy drop and drastically reduced prices in 2009.

So why did hotel occupancy drop amid the good wind of the Olympics? It’s not because tourists are scarce, but rather, because most of the hotel investors put their stake on the Olympic Games, made sweeping efforts to build high-end hotels, resulting in a supply-exceeding-demand situation. This laid down the seeds for future predicament. When the financial meltdown came, worldwide businesses travels and leisure travels fell sharply in number, drastically reducing the customer source of high-end hotels. No effective upturn has been observed since last November.

China will see many new hotels open to business in the coming year. As the drastically decreased market demand shows no signs of recovery, continued input of hotels will stress the market further. The next scenario: hotel occupancy continues to fall, prices will drop further.

Fairtheworld.com points out that, the poor operational conditions will drag some hotels down into capital shortfall. Starting from the second half of 2009, high-end hotels here and there will find themselves trapped in turnover difficulties and start to seek buyers. By then, the hotel investment market will see a surge, with much domestic and foreign capital rolling in, seeking for merger or acquisition targets.

Fairtheworld is implementing a “global 4- and 5-star hotel cooperation plan” intended to improve operational conditions of high-end hotels. Fairtheworld engages many cross-sector, global high-end companies, which will bring benefit to hotels entering the Expo. Also, the “Fair N Fair” 3D Virtual Expo platform, developed by Fairtheworld, will introduce venture capital, finance, insurance and other supporting agencies before long, which will promote the development of hotel investment and further invigorate the market.

Source: Hotels Magazine (July 21, 2009)

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posted on July 21, 2009
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