International hotel groups are increasing their presence in China, betting on the cheaper end of the market as the country’s economic slowdown hurts travellers’ budgets.
Hyatt, IHG and Radisson are among the global hotel chains expanding in the world’s second-biggest economy — and converting some of the many unoccupied office blocks to hotels — as they look to target younger, more cost-conscious travellers.
Hyatt, the US hospitality group known for upmarket brands such as Grand Hyatt and Hyatt Regency, has about 170 of its more than 1,300 hotels in China. It plans to add another 140 in the next four years, about half of which will be part of the mid-range UrCove brand.
UrCove charges about $60 a night on average for rooms in its 50-plus hotels in China, about half the cost of a night in some of the Hyatt Regency’s nearly 40 hotels in the country.
Hyatt’s focus on UrCove, a joint development with Chinese hotel chain BTG Homeinns, will allow it to expand into more cities and “grow our base”, including for young domestic travellers, said Stephen Ho, who runs Hyatt’s greater China business.
With Chinese companies cutting costs and trimming travel budgets, demand for expensive hotel rooms has fallen sharply in recent months, said Zhou Mingqi, founder of China-based consultancy Jingjian Consulting, which specialises in tourism and real estate.
“[Many] Chinese are more cautious on spending in a slower economy [but are still pursuing] quality,” said Ernan Cui, a consumer market analyst at Gavekal. “As a result, mid-to-upscale hotels are favoured and would see stronger growth than [high-end luxury hotels].”
Some hoteliers are renting and converting empty office blocks into affordable hotels. Seven of Hyatt’s UrCove hotels in the tech hub of Shenzhen were converted from empty floors in existing office buildings, said Ho.
“[We] can convert office space, even residential space, sometimes existing buildings . . . [and] reconfigure it into a hotel,” he said. “Most of the time they only have one restaurant, [limited] meeting space and no swimming pool . . . so it makes it easier to convert [from] an office space.
“It’s a worthwhile investment,” he added. “You don’t have to build the building, you don’t have to buy the land, right?”
Daniel Aylmer, chief executive at IHG Greater China, said “over half of our open and pipeline hotels” in the greater China region — which includes the mainland, Hong Kong, Macau and Taiwan — would fall under two of its mid-range brands, Holiday Inn and Holiday Inn Express.
He added there had been a “ramp-up in recent years” of conversions from existing buildings, accounting for nearly 30 per cent of its openings in greater China in the first half of last year. The group said mid-range hotels were experiencing “substantial” growth in China as “consumer behaviours evolve”.
Belgium-based Radisson, which was acquired by Chinese conglomerate Jin Jiang International in 2018, said it was planning about 400 new hotels in China by 2030, including a large number of mid-range rooms.
Some of its new hotels will be converted from office buildings, said Elie Younes, Radisson’s global chief development officer. “People in secondary cities are spending less in China, so I have to afford to build the hotel that the customer can afford,” he said.
Average room rates at luxury and upscale hotels in China were down by up to 20 per cent in October compared with the previous year, said Rao Linfeng, a China-based hotel investment strategist. Overall room rates are still growing but at a slower pace this year as the post-pandemic travel demand surge loses steam and economic growth remains slow.
The decline in consumer spending at China’s luxury hotels is “evident”, said Harlem Chow, a former executive at H World and Wyndham. “Former five-star hotel guests now choose four-star options, while four-star guests turn to upper mid-range hotels.” Guests are also opting for cheaper brands and having fewer overnight stays, said Chow.
As international hotel groups target the more cost-conscious traveller, they face increased domestic competition.
Groups such as H World and Atour are also investing in mid-range hotels, said Kevin Hei, business development manager at Empark Hotels & Resorts.
The higher-end market was “unlikely to see a strong rebound any time soon”, said Zhou of Jingjian Consulting, adding that international brands would increasingly see thin margins. “Ultimately, they’ll have to compete just as aggressively as local brands do.”
