AAAAAAAAAAA. GHN Market Report: China Hotel Market Half-Year Update

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GHN Market Report: China Hotel Market Half-Year Update SENTIMENT SURVEY As part of a global initiative, Horwath HTL recently conducted its semiannual global sentiment survey.

1 GHN Market Report: China Hotel Market Half-Year Update SENTIMENT SURVEY As part of a global initiative, Horwath HTL recently conducted its semiannual global sentiment survey. From that survey, we will examine the current hotel market sentiment in China. Zoe Wu Director Horwath HTL CHINA VS. GLOBAL HOTEL MARKET SENTIMENT TREND When the global survey was first conducted in 2009, sentiment was at a real low as the global economy was experiencing a recession, reflected by the negative sentiment score for both the globe and China. As the government s stimulus package kicked in, sentiment markedly improved in Since then there has been a steady decline in the sentiment score, with the index moving back into the negative territory for China over the three consecutive surveys. Particularly, the most recent survey shows that the score has gone down to a similarly low level as the global financial crisis period. This no doubt is a reflection of the unease caused by the global economic uncertainties (which we will show later), the nationwide tightening policy toward government Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 1

2 expenditure on hotels, events and banqueting as well as a decline of international arrivals for major cities. Comparing this now to the global average sentiment score, we can see that China has had a more negative outlook since July This may be an indication that the Chinese hotel industry is more affected by its domestic market rather than the international environment. ACTUAL PERFORMANCE VS. EXPECTED PERFORMANCE This first set of data is in reference to total market performance. Respondents were asked to compare the actual hotel performance as of the first half of this year to the performance forecasted at the beginning of the year. The negative respondents accounted for the majority, especially for the total revenue, indicating that the overall market performance has been declining more significantly than most had expected. One of the major reasons could be the stricter-than-expected new national policy execution which has caused a sharp decline in government related demand. It is also worth noting that there are more negative respondents for the total revenue than ADR and Occupancy. This could possibly imply that food and beverage performance was more widely considered not as good as expected compared to rooms. Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 2

ACTUAL IMPACT VS. EXPECTED IMPACT OF CONTINUED GLOBAL ECONOMIC UNCERTAINTIES Respondents were then asked to assess the impact of global economic uncertainties on the hotel demand.

The unexpected slowdown in domestic economic growth and underestimation of such impact at the beginning of the year, is believed to be one of the reasons which leads to the fact that

3 ACTUAL IMPACT VS. EXPECTED IMPACT OF CONTINUED GLOBAL ECONOMIC UNCERTAINTIES Respondents were then asked to assess the impact of global economic uncertainties on the hotel demand. There was a higher share of respondents who reported that continued economic uncertainties have impacted the hotel demand more than they had expected. The unexpected slowdown in domestic economic growth and underestimation of such impact at the beginning of the year, is believed to be one of the reasons which leads to the fact that actual performance tends to be worse than expected as shown in the last chart FIRST HALF VS FIRST HALF FOOD AND BEVERAGE REVENUE Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 3

Moving on to the food and beverage business, the respondents were asked to compare food and beverage revenue as of the first half of 2013 to the first half of 2012.

4 Moving on to the food and beverage business, the respondents were asked to compare food and beverage revenue as of the first half of 2013 to the first half of Predominantly, almost 80 percent of the respondents claimed shrinking food and beverage revenue this year, with the majority observing a 0 to 20 percent reduction. This is, again, a result of a sharp drop in the government spending due to the belt tightening policy launched in November Many hotels have observed lower utilisation levels for their food and beverage outlets as well as the banquet space, while the average check also showed a noticeable decline trend. Among the remaining positive responses, a larger number of respondents reported same food and beverage revenue or only a moderate growth within 10 percent compared to the same period of last year FIRST HALF VS FIRST HALF ROOM NIGHT DEMAND GROWTH BY SEGMENT Looking at the demand growth for 2013 by key market demand segment, we have seen the largest number of positive responses for the corporate segment which is followed by the leisure segment. By contrast, MICE segment received a notably higher number of negative responses. This is also due to the national policy which has caused grief to the meeting demand, especially from government related activities and events. Among the positive responses for all the 3 segments, those who reported a moderate growth within 0-10 percent range account for the Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 4

5 largest share meaning that the demand growth has been likely moderated by the unfavourable market environment. EXPECTED 2013 SECOND HALF VS SECOND HALF PERFORMANCE This group of data sets forth the performance outlook for the second half of The majority set negative tone, with the most respondents expecting the decline to occur in regards to the total revenue. The dim outlook reveals that in some sense most hoteliers still expect the impact of the national policy to continue to remain significant. EXPECTED 2013 SECOND HALF VS SECOND HALF PERFORMANCE Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 5

The respondents were further asked what the performance would be like in the second half of 2013.

6 The respondents were further asked what the performance would be like in the second half of Similarly, over 60 percent of the respondents expect the total revenue, ADR and Occupancy to decrease, meaning that the overall market is likely to remain soft for the coming months. HISTORICAL PERFORMANCE REVIEW Our China Hotel Market Half Year Update focuses on reviewing performance trends of 15 key hotel markets in China. We have used selected data from STR Global of the upper-mid-tier and above hotels in each market JUNE YTD VS JUNE YTD OCCUPANCY, 15 MAJOR CITIES The only 4 markets that achieved over 60 percent occupancy in the first half of 2013 are Shenzhen, Nanjing, Beijing and Guangzhou. Shenzhen and Nanjing saw an increase in occupancy level. Supply level in Nanjing stayed flat, while Shenzhen only posted slight supply growth. Beijing, experienced a dip in occupancy as a result of a decline in government related demand due to the belt tightening national policy and the severe air pollution early this year. As for Guangzhou, the occupancy generally remained at the same level as last year, with demand growth catching up to supply growth quite well. Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 6

7 The next group of cities are the markets with over 50 percent occupancy, which include Shanghai, Sanya, Xiamen, Chongqing, Hangzhou, Suzhou, Tianjin and Chengdu. The occupancy levels of Shanghai, Chongqing, Hangzhou, Suzhou, Chengdu markets dropped this year. Among these markets, only Chongqing was mainly impacted by relatively strong supply growth, while the rest was experiencing a softening half year with generally marginal or even negative market demand growth. The 2 tourism cities in Yangtze River Delta - Hangzhou and Suzhou were believed to be partly affected by the dead pig (on the river) incident and more importantly the outbreak of bird flu. The Shanghai market slowed down with the soft economic environment both domestically and internationally, while Chengdu suffered demand loss from the earthquake within the province (Ya an). The markets which witnessed occupancy increases are Sanya, Xiamen and Tianjin. The occupancy of Sanya managed to climb a bit without significant pressure from supply growth and the stabilization of newer hotels in the newly developed areas especially Haitang Bay. For Xiamen and Tianjin, the markets were supported by stronger demand growth than supply growth. The last group of cities are the markets with occupancy performance below 50 percent, which are Xi an, Qingdao and Dalian. Xi an s occupancy remained flat. The Qingdao market was overwhelmed by large influx of new supply which has led to a notable decline in occupancy. Dalian only saw a moderate supply growth, however the stagnant demand did not help to push up the occupancy, partly due to a sharp decline of Japanese tourists (which is the No. 1 source of international arrivals for the city) affected by the conflicts between China and Japan since the significant Diaoyudao incident starting from September JUNE YTD VS JUNE YTD RNA AND RND GROWTH, 15 MAJOR CITIES Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 7

The first set of cities are those which achieved more than 10 percent market demand growth, including Guangzhou, Chongqing, Qingdao, Tianjin, Sanya and Xiamen.

8 The first set of cities are those which achieved more than 10 percent market demand growth, including Guangzhou, Chongqing, Qingdao, Tianjin, Sanya and Xiamen. The generally strong market demand growth of these markets, except Sanya, seemed to have been spurred on by supply increases, especially Xiamen and Qingdao. As for Sanya, the stabilization of Haitang Bay has been a significant driver for room night demand increases. The next batch of markets, including Dalian, Nanjing, Suzhou, Shanghai, Shenzhen and Xi an witnessed moderate demand growth within 10 percent. The last group of markets, with negative market demand growth, include Chengdu, Beijing and Hangzhou. Regardless of relatively strong supply growth, Chengdu, saw a significant demand decline due to the Ya an earthquake which occurred in April. Beijing, as mentioned previously, was greatly affected the national policy and the air pollution. Hangzhou, was threatened by the gloomy tourism market resulting from the outbreak of bird flu in the second quarter which was supposed to be a high season JUNE YTD VS JUNE YTD ADR, 15 MAJOR CITIES As shown, Sanya is the only market with an ADR exceeding RMB 1,000 threshold. However, compared to the last year, the market did not gain rate growth although both the market occupancy and room night demand grew strongly. Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 8

9 The 4 first tier cities - Guangzhou, Shenzhen, Beijing and Shanghai achieved the above RMB 800 level room rates. Guangzhou managed to increase the room rates as a result of the opening of a few new high end hotels in the second half of 2012 including Mandarin Oriental and Four Seasons. Shenzhen s room rate did not follow the pace of demand growth mainly because of decreasing high yielding demand from financial industries due to suspension of IPOs in China since late Beijing and Shanghai presented negative growth for room rates given the softening market environment. The next 5 cities, Hangzhou, Xiamen, Chengdu, Dalian and Tianjin fell within the RMB 600 to 800 range. Hangzhou and Chengdu saw the difficulties in holding the rate levels with challenges of declining demand. Surprisingly, although there was reasonably strong demand growth for Tianjin, the market room rate still went down because most of the hotels in the market opted for a volume driven strategy which somewhat jeopardized the room rates. Xiamen and Dalian ended up maintaining the room rates at roughly the same level as last year. The last group of cities comprises of Qingdao, Chongqing, Nanjing, Xi an and Suzhou whose market room rates fell below RMB 600. All of these markets recorded lower room rates compared to the same period of last year. Qingdao and Chongqing were faced with intensifying competition from rapid supply increases. The room rates of Nanjing and Suzhou were curtailed by slow demand growth. Xi an, despite reasonable demand growth, saw a downward trend for its room rates, due to a shift of MICE demand from higher yielding SOE demand to lower yielding company segments JUNE YTD VS JUNE YTD REVPAR, 15 MAJOR CITIES Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 9

10 Looking at the resulting RevPAR, we have noticed that 11 out of 15 cities saw a decline in RevPAR. Clearly, downward performance in the first half of this year is not a single market phenomenon, but a country-wide trend. The only markets with positive RevPAR growth are Sanya, Shenzhen, Guangzhou and Xiamen. CONCLUSION AND OUTLOOK EXISTING SUPPLY AND EXPECTED NEW SUPPLY, 15 MAJOR CITIES The chart shows the existing supply level and the additional room supply in the pipeline for the 15 cities. The cities which are expected to see over 10,000 additional rooms include Sanya, Shanghai, Chengdu and Tianjin, while Xiamen and Shenzhen have the least amount of new supply with less than 4,000 rooms in the pipeline. From the above historical performance and sentiment survey, it is our understanding that with the significant impact from the national policy, coupled with the economic slowdown both domestically and internationally, the market is expected to continue to suffer the pain of stagnant demand growth in the short term and hoteliers are forced to explore the new replacement demand. On the other hand, the large amount of new supply in the pipeline also presents the market with another significant challenge in the near future, especially when market demand is not strong. Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 10

However, China hotel market has come to a turning point. It has entered an adjustment period after rapid development we have all witnessed in the past decade.

11 However, China hotel market has come to a turning point. It has entered an adjustment period after rapid development we have all witnessed in the past decade. This is what all the developing hotel markets need to walk through on their way to a further maturation stage. Along with the changing market demand and segmentation, we should see new opportunities of hotel repositioning, conversion, change of brands and management practices. Compared to other international markets, China has yet to reach the saturation point, which means that there is still room for further growth. After the market has gone through the temporary downturn, we believe that China should see a more established, healthy and sustainable market. Zoe Wu is a regular contributor of Asia hotel market insights for GlobalHotelNetwork.com. Horwath HTL is a long-standing member of GlobalHotelNetwork.com. Copyright (c) 2013 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 11

HORWATH HTL NEWSLETTER CHINA EDITION 2, 2010 浩华中国资讯 2010 年第 2 期

HORWATH HTL NEWSLETTER CHINA EDITION 2, 2010 浩华中国资讯 2010 年第 2 期 HORWATH HTL NEWSLETTER EDITION 2, 2010 浩华中国资讯 2010 年第 2 期 MARKET OVERVIEW XIAMEN GENERAL MARKET REVIEW Located in the southeastern part of Fujian province, Xiamen is one of China s Special Economic Zones,