During the peak of the COVID-19 outbreak in China, the national tourism industry suffered greatly, largely as a result of the travel restrictions imposed to stop the spread of the virus. With tourist travel essentially coming to a halt, bookings and occupancy rates plummeted, and hotel owners and operators in China have faced unprecedented pressure.
Since the lockdown has been lifted in many parts of the country, however, business activity in China’s hospitality industry has begun to pick up. According to STR—a U.S.-based company that tracks data for the global hotel industry—hotel occupancy in China has climbed above the 30.0% mark as of April 11, up from a low of 7.4% during the first week of February.
As the industry begins to recover, hotel owners and operators in China will need to develop both short- and long-term plans around their assets, and tailor them to address a number of key issues. Three include:
- Hotel building health and safety
- Adopting and implementing smart building technology
- A renovation/repositioning of the property asset
Hotel building health and safety
When COVID-19 began to gain a footing in China, many hotel operators quickly took steps to strengthen hotel building health and safety levels to combat the spread of the virus. We expect to see these efforts continue in the short term, including temperature checks and regular cleaning schedules.
In recent years, with the rapid development of technology, hotel guests in China have increasingly demanded new types of efficient and convenient hotel services that feature high-tech solutions. And the demand for smart hotels will likely increase in a COVID-19 and post pandemic world. Although efficiency and convenience will still drive the adoption of new technologies, hotel health and safety will be an additional driving force in the hospitality industry, given smart technology’s ability to assist in monitoring the health of occupants.
Reassessing property assets
Given the impact of COVID-19 and the subsequent cash flow difficulties the industry in China is facing, some hotel property owners may start looking to sell their property assets. Others, however, may decide instead to work with their hotel operator and third-party consultants to renovate or reposition the asset to augment market competitiveness and ensure future business growth.
Under a renovation or repositioning scheme, much will need to be considered from a business point of view, including:
- Competitor response strategies
- The characteristics of customer needs
- Guest service standards to be adopted and implemented
- The theme and standard of renovation
- The future branding of the hotel
As owners consider renovation or repositioning assets from a real estate point of view, it will also be very important for them to understand the fundamental current supply and demand dynamics, as well as the longer-term trends of the property market in each hotel’s locality. These include:
- Current and future tourist spending power and tourist visitor numbers to the locality
- Current and future growth of the locality’s service sector
- Current and future tourism development in the locality
- The significant sporting, tourism, cultural, trade and business events held or to be held in the locality
- Current and future staycation activity in the locality
- Current and future urbanisation and urban development in the locality
- Current and future transportation infrastructure projects in the locality
- Current and future level of urban renewal activity in the locality
Future trends for hotel properties specifically
This last factor is critically important—a failure to understand or anticipate future trends could make or break the renovation or repositioning of the project. While there are many trend categories owners will need to consider, hotel design and hotel construction & fit out quality will be two critical ones.
In for the Extended Stay
Once tourism and business travel fully resumes in China, hospitality business activity will begin to return to normal. With this normalisation, hotel owners and operators in will be in a position to fully appreciate the longer-term business opportunities in the Chinese hospitality industry, given the expected growth in business travel and tourism. And with that future positive outlook, we expect many hotel owners and operators in China to be in for the extended stay.