Business / Industries

Hotel investments buck falling trend

By WANG WEN (China Daily) Updated: 2014-12-02 08:24

Hotel investments have showed a remarkable resilience in China this year, notwithstanding the sluggishness in the commercial property market and the ongoing government crackdown on corruption, a report said on Monday.

Hotel investments in China during the first six months of the year surged to about $1 billion, an 83 percent growth over the corresponding period in 2013, according to the Asia Pacific Hotel Investment Highlights report released by Jones Lang LaSalle, the Chicago-based global real estate services firm.

At the same time, many of the property owners are looking to exit from their old assets in China as the market has more or less reached a low point in the investment cycle, after some difficult years, the report said.

About 200 hotels are scouting for new owners and some of them are also offering some offline properties for sale, said data from Hotel Property, a Shanghai-based online hotel property agency. The total volume of the assets on sale stood at about 80 billion yuan ($13.01 billion), said a senior director of the website's big investor department surnamed Feng.

By the end of November, over 10 hotel properties valued at 2.7 billion yuan were sold through the online agency, which started business at the beginning of this year, Feng said. Most of the transactions involved hotels in big cities, such as Beijing, Shanghai and Shenzhen, and most of them are domestic brands, he said.

China's hotel industry, especially high-end hotels, have been facing tough times due to the ongoing government crackdown on corruption and several owners are believed to be scrambling to exit from the industry altogether, sources said.

"High-end hotels which are largely dependent on government business have been the worst hit," Feng said, adding that in some cases the owners had to sell the hotels as business is virtually non-existant.

The sharp fall in government consumption has led to lower income for hotels in even smaller cities, thereby making it difficult for the industry to withstand the situation, said Zhang Ruigang, director of the China Tourist Hotels Association.

The general weakness in the real estate sector has also led to more transactions in the hotel sector, some experts said.

"Some of the developers are trying to cope with the difficult situation by placing their hotel property on the market," said Li Meng, senior vice-president of Jones Lang LaSalle's hotels and hospitality group.

China's commercial realty sector had developed rapidly in the past few years, leading to a proliferation of high-end hotels, Li said.

"There is a bubble in the market and it is normal for some property owners to seek exit options," she said.

Some State-owned companies are disposing of older properties as they shift toward an asset-light model in the era of innovation, whereas developers are looking to dispose of non-core assets, according to the LaSalle report.

China's hotel industry is recovering from the bottom this year and the market is being reconstructed, sources said. "The most difficult time has passed," Li said.

Li said the firm's statistics show that occupancy rate in main cities increased in October, although the average daily rent has slightly reduced.

China's huge domestic and inbound tourism provides several business opportunities for hotels, and they should focus more on individual consumers, rather than government business, she said.

Domestic tourism in China stood at 3.262 billion trips in 2013, a 10.3 percent year-on-year growth over 2012, according to data provided by the National Tourism Administration.

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