The confetti will drop on 4,160 new hotel openings around the world in 2020. Australia is number six on the list with 171 openings – which is more impressive than it seems, given the fact that we experienced a 65% increase in international visitors from 2010-2018. People around the world have always dreamed of reaching our shores, and greater numbers are making that dream a reality. Long-term projections for the Australian hospitality market remain healthy, even if growth rates have tapered off.
Number two on the list for hotel openings in 2020 (behind the U.S.) is China, with 1,134 properties and 276,404 guestrooms. This, too, is more impressive than it seems. China continues to capture the attention of hotel investors around the world, both for its robust tourism export and its growing domestic hospitality scene. It’s estimated that by the end of 2030, China will be the number one tourist destination in world, as well as the world’s number one exporter of tourism. In terms of global hotel scene, that’s an awfully potent one-two punch.
Hotel investors, particularly the big global brands, have been wise to China’s potential for quite some time. The country now has a record-breaking hotel development pipeline, with Hilton at the top of the list, and a pastiche of recognisable brands close behind. But as with any booming hotel market, China’s very visible potential is precisely the factor that threatens to gum up the works. Supply, demand, and occupancy growth have charted a downward course since 2018.
This sort of statement is obviously not as bad as it sounds, since we’re still talking about growth. But as supply has caught up with demand, and has even begun to outpace it, occupancy rate growth has faltered. This in turn has had a detrimental effect on Average Daily Rates and RevPAR in the Chinese market.
Shifting fortunes
The fall in demand growth is sharper for high-end hotels, which could spell trouble for new luxury properties coming to market in China. Economy and mid-range properties have more flexibility with pricing, and are thus better-equipped to deal with the market fluctuations brought on by rapid development.
The good news is that mid-range hotels enjoy the largest market share. The bad news is that luxury hotels will feel a pinch if growth of supply continues to outpace growth of demand.
Vacation rentals may further complicate the picture. Several Chinese booking platforms, including Tujia and Muniao, are contending with AirBnb for market share as socioeconomic conditions provide fodder for growth. For example, years of speculative real estate investment have resulted in many properties that sit unoccupied. Owners increasingly want to monetise, so long as they can find a trustworthy platform.
Meanwhile, a large number of rural properties are being abandoned as people migrate to urban areas in search of better jobs. These properties can be converted into vacation getaways for domestic travellers looking to escape the city, or international arrivals looking for a taste of rural China.
How does it all settle out?
There are no two ways about it: China is a massive, booming hospitality market. But like any market that experiences sudden and apparently limitless growth (see the Australian mining industry in the early 2000s), limits will eventually make themselves known.
The smartest hoteliers I know are watching the Chinese hotel market carefully, for the simple reason that it has so many things to show us. Through it, we can develop a keener understanding of hospitality market dynamics. We can better understand the push-and-pull of economy, mid-range and luxury properties – and how this relates do class dynamics within a given market. We can see the ways in which vacation rental platforms exploit gaps, and learn from the ways in which hotels cope with setbacks.
Obviously, we can see these phenomena at work in Australia and other markets, but China offers the benefit of unprecedented scale. It may be number two on the list of hotel openings for 2020, but in terms of the next decade, China is the one to watch.
