2H 2014 Savills World Research China Asian Cities Report Guangzhou Hospitality 2H 2014 savills.com.hk/research savills.com.hk/research 01 Asian Cities Report | Guangzhou Hospitality MAP 1 Supply Distribution of five-star hotels in urban districts Since 2012, thanks to the entrance of several renowned luxury hotel brands, Guangzhou’s hospitality sector has experienced a period of remarkable development. The Four Seasons, Mandarin Oriental and W Hotel launched their Guangzhou locations within that time, all in Tianhe district. Prior to this, there was only one hotel which could be categorised as a luxury five-star hotel – The RitzCarlton Guangzhou, established in 2008. The entrance of the Four Seasons and Mandarin Oriental has undoubtedly undermined the Ritz-Carlton’s edge in Guangzhou’s luxury hospitality sector. Additionally, Guangzhou’s W Hotel was the first W Hotel in mainland China as well as the first boutique hotel in Guangzhou, bringing consumers an alternative hospitality experience. Source: Savills Research & Consultancy GRAPH 1 Five-star hotel supply, pre-2000–2016E Local International 4,000 3,500 No. of room 3,000 In addition to the aforementioned hotels, Grandview Marriott in Tianhe, DoubleTree by Hilton in Yuexiu and Langham Place in Pazhou were also launched between 2012 and 1H/2014. In all, six five-star hotels have entered the market in the past two and a half years, expanding Guangzhou’s upscale hotel stock by about 20%. 2,500 2,000 1,500 1,000 500 0 Source: Savills Research & Consultancy GRAPH 2 International five-star hotel stock, 2014 vs 2016E 2014 2016E K.Wah Langham Tianhe district, which includes both Tianhe Bei and Zhujiang New Town, became a hub for five-star hotels with over 30% of the stock located here. This can be attributed to the fact that Tianhe Bei and Zhujiang New Town are the most mature and important CBDs in Guangzhou. Nikko Kempinski Rosewood Mandarin Oriental Jumeirah Four season Hilton Intercontinental Marriott Hyatt Starwood Shangri-La Accor 0 500 1,000 Source: Savills Research & Consultancy 02 1,500 2,000 2,500 3,000 No. of room There are currently 12 five-star hotels in Tianhe district – eight in Tianhe Bei, and four in Zhujiang New Town. The hospitality market in Zhujiang New Town will reach maturity by 2016, with seven five-star hotels expected to enter the market between 2H/2014 and 2016. Half of the projected new supplies in Zhujiang New Town are considered luxury brands, such as Jumeirah, Conrad, Nikko, Kempinski and Rosewood Hotel. 15 new five-star hotels are expected to enter Guangzhou by 2016, a 40% increase of current stock. The market will likely continue to feel supply pressure over the next few years as it continues to see new additions. Demand In the current market and with the projected influx of stock, demand is not keeping pace with supply. Due to the global economic slowdown and the expensecutting policies imposed by the Xi government, demand from the meetings, incentives, conferences and events (MICE) sector, State Owned Enterprises (SOEs) and the government, which accounts for a large share of demand within Guangzhou’s hospitality market, has witnessed a noticeable decrease. As a result, revenue generated by the MICE sector, whose drivers were large MNCs and SOEs, registered a decrease of over 10%. To lessen the impact of this, many five-star hotels began to set their sights on the wedding market. Exhibitions of wedding products and services were held and hotels began offering different wedding banquet packages. In terms of overall performance, average occupancy rates remained above 60%, while occupancy rates in Q1/2014 reached only 59.3%, due to the traditional slow season. According to the latest STR Global press conference, Guangzhou is one of the few cities where the growth of demand exceeded the growth of hotel supply. Despite stable occupancy rates, intensified competition still affected the room rate. Average daily rate (ADR) has fallen for two 2H 2014 consecutive years, suggesting that many operators have resorted to price discounts to attract customers. a substantial number of office developments. MICE and leisure groups are also expected to provide a significant amount of demand. GRAPH 3 Ratio of local brand hotels to international brand hotels, 2005 vs 2016E Local The Guangzhou Commodity Pricing Bureau announced the abolishment of hotel pricing guidance during the Canton Fair from October 2014. The policy of hotel pricing guidance had been in effect for the past eight years. Its main purpose was to help avoid irrational price surges during the Canton Fair. The period in which the Canton Fair takes place is usually a peak season for Guangzhou’s hospitality market. The profits earned during these two months tend to make up a large share of a hotel’s annual profit. However, due to a large amount of new supply entering the market, competitiveness has increased and has succeeded in curbing unreasonable pricing. In light of this, the hotel pricing guidance policy was rescinded to make way for a self-regulating market. Outlook There are currently 16 fivestar hotels in the planning and construction stages. In the remainder of 2014, four five-star hotels are expected to be handed over, followed by an additional five in 2015. This new supply will increase the number of hotels by 40%. Seven of the new projects are located in Zhujiang New Town. With the completion of these projects, Tianhe district, including both Zhujiang New Town and Tianhe Bei, will have 21 five-star hotels, accounting for about 40% of Guangzhou’s total five-star stock. Vacancy rates are expected to go up in the short run due to the amount of new supply entering the market. Consequently, to cope with the large amount of new supply and the increased competition that brings, five-star hotels are expected to start relying more on their advantages and characteristics that offer customers a unique experience. 2016E 2005 11% 17% 89% 83% Source: Savills Research & Consultancy The large number of internationally renowned brands entering the market may start to pose a threat for domestic five-star hotel brands. However, this may also prompt domestic brands to start improving their service quality. This would allow them to raise their standards of operation to more internationally acceptable levels and, therefore, compete more effectively with global brands. GRAPH 4 Five-star hotel distribution by room number, 2014 vs 2016E Baiyun Nansha Haizhu Panyu Huadu Tianhe Huangpu Yuexiu Liwan Zengcheng 2016E 2014 31% 6% 8% 23% 6% 8% 19% 8% In view of the rapid growth in new supply, operating costs continue to rise as do client expectations of hotels and their products. In the future, the hospitality market is expected to focus less on star rating and price, and more on service. But for now, transformation will be necessary, especially for local five-star hotel brands. 7% 7% 12% 4% 24% 87% 5% 13% 5% 10% 13% 2% Source: Savills Research & Consultancy GRAPH 5 Five-star hotel performance, 2007–Q1/2014 ADR (LHS) RevPAR (LHS) Occupancy (RHS) 1,000 66% 900 64% 800 62% RMB per room per night Government guidance price abolished International 700 60% 600 500 58% 400 56% 300 54% 200 The supply within these areas is likely to cater to corporate travellers and free individual travellers (FITs) as they are surrounded by 52% 100 0 50% 2007 2008 2009 2010 2011 2012 2013 Q1/2014 Source: Savills Research & Consultancy savills.com.hk/research 03 ASIA PACIFIC HEADQUARTERS 23/F Two Exchange Square, Central, Hong Kong Tel: (852) 2842 4400 Fax: (852) 2868 4386 HONG KONG SAR Savills (Hong Kong) Limited 23/F Two Exchange Square , Central, Hong Kong Tel: (852) 2842 4534 Fax: (852) 2869 6738 Contact: Raymond Lee E-mail: [email protected] EA Co. 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