Secondary Cities Drive China’s Hotel Performance

Despite a massive influx of supply in China’s first-tier cities – Beijing, Shanghai, Guangzhou and Hong Kong – the country’s overall hotel market performance remained positive in 2011.

According to a new STR Global report, the country posted 2.8 per cent year-to-November 2011growth in revenue per available room (revPAR), largely driven by quickly-expanding secondary cities.

STR Global tracked hotels in 22 cities, and found that most reported higher revPAR growth than the national average. China’s secondary cities are continuing to grow at a faster rate than major urban centers, as government policies encourage development of technology and manufacturing trade zones at these locales.

Limited new supply and strong demand boosted revPAR in Xiamen (+30.8 per cent) and Chengdu (+20.3 per cent), both of which are considered important regional financial centers.

Wuhan, known for its car and steel manufacturing, experienced a 4.1 per cent drop in occupancy, while average daily rates (ADR) soared 18.2 per cent, contributing to outstanding revPAR growth of 13.4 per cent.

Destinations with a more balanced mix of visitors such as Hangzhou saw occupancy decline 8.0 per cent compared to the previous year. The decline was the result of additional room supply (+5.6%) and increased ADR (+10.4 per cent). The city’s revPAR saw a small 1.6 per cent increase.

Double-digit revPAR growth was also experienced in Shenyang (+23.7 per cent), Xi’an (+16.9 per cent), Wuxi (+16.4 per cent), Sanya (+13.7 per cent), Qingdao (+11.8 per cent) and Tianjin (+11.6 per cent).

Hotel supply growth from city-to-city is supported by an expanding real estate market and a surging regional economy, according to the report.

“Hotel development by international and regional hotel chains over recent years has focused more and more on secondary cities across China”, said STR Global Managing Director Elizabeth Randall.

“This development reflects the growing importance of these markets as economic centers, and demands generators for inbound and outbound visitors. In 10 out of 15 cities, demand grew at higher rates than supply; however the right balance between supply and demand will be crucial to the future success of hotels in these markets.”

Source: STR Global