Beijing looking at continued rate cutting, while Shanghai faces increased demand from business.
THE dawn of the new millennium signals boomtime for hotels in Shanghai, while Beijing properties continue to struggle with an oversupply of inventory and an intense price war.
Horwath Asia Pacific's Hong Kong director Nigel Summers predicts that Shanghai will experience a strong increase in demand next year as it becomes China's leading commercial centre. However, occupancy and rates will remain lower - in the 60 per cent range - because of oversupply. And the glut of rooms will not dissipate with new demand; two major new Marriott properties open in 2000, while a Four Seasons will open in 2001.
The Shanghai market will split, says Summers, as Pudong takes over from the city centre as the commercial hub and the airport relocates to its new venue in April 2000. Hotels at the old airport, and in the city centre will suffer while those closer to the action will do very well. "The hotels in Pudong are brilliantly located," he says, "people will choose their hotel based on proximity to the new business centre."
By contrast, some of the properties at the old airport and in the downtown core are suffering from their advancing age. Small bathrooms, low ceilings and other design flaws make them much less desirable than their newer, better located competitors.
Five hotels have opened in Pudong during the past few years, and hotels in the area are only achieving 50 per cent occupancy.
Summers expects to see that number reach 70 per cent by 2001 as interest in Pudong heats up.
But Marriott area director of sales and marketing, China, Daniel Lai says increased competition from newly opened hotels in Shanghai is putting pressure on rates. "There is increased competition, but we believe, with our product, location and loyalty programme, that we are in a position to compete."
Portman Ritz-Carlton Shanghai director of sales and marketing Andrew Nasskau says the property has enjoyed a 95 per cent to 100 per cent occupancy since the Chinese National Day celebrations, but acknowledges rates slipped in Shanghai.
"Rates have adjusted for a number of reasons, but I'm confident we will start to see an upturn soon."
Nasskau says the property, which recently renovated its lobby and first floor, is in a prime position to benefit from the Yanan Elevated Highway, which opened in September. "It's good for us because it is far enough away not to be a problem with noise, yet it is close enough to be conveniently accessed."
He says other infrastructure projects, such as the planned light rail service, will be a boon for the city.
"There are some amazing plans for Shanghai and we can only benefit from them."
Another factor for Shanghai's hoteliers is China's entry into the World Trade Organisation. "Everyone in Shanghai is pining their hopes on the WTO deal bringing more business," Summers says. "The hotel market in China has survived on foreign investment generated demand. The WTO will create a second wave. With the demand it creates there may be a 20 per cent growth spurt within the next two years."
Beijing, by contrast, has seen a shift towards the leisure market. Occupancy is up because the major hotels have entered a price war but prices have dropped by as much as 30 per cent.
Jian Guo International Hotels Director of Sales and Marketing for Beijing Johnny Lam says that Beijing hotels are undercutting each other: "Five star hotels are selling for four-star prices and so on down the line. It's not good for the hotels but it is good for the tourists."
Like Shanghai, the capital also suffers from oversupply. But while Shanghai's new properties are near completion, Summers believes that several planned new hotels in Beijing may be cancelled by investors.
Lai says Marriott is focusing attention on the domestic market.
"At our New World Courtyard hotel in Beijing, we are looking at developing plans to get into the domestic market for exhibitions and corporate meetings."
Marriott International is on an expansion drive in mainland China.
The group presently has 20 properties in China and Hong Kong. Another six Marriott properties are scheduled to open in the mainland within the next two years.