the hotel market in China hospitality in China

China’s hotel market sees fast recovery from the epidemic and positive outlook for future development

Share on linkedin
Share on twitter
Share on facebook
Share on email

With increasing domestic tourism and business travel, the hotel market in China is far from reaching its saturation point. These years, China’s hotel industry has experienced meteoric growth. In 2019, the market size of hotel industry sales revenue was 677 billion Yuan.  The industry market concentration is still relatively high. Jinjiang Group, Huazhu Group, and Beijing Tourism Group are the top three domestic hotel management brands in China.

Data resource: China Hotel Association, Qianzhan, inntie.com, designed by daxue consulting,2019 number of hotels in China

Data resource: China Hotel Association, Qianzhan, inntie.com, designed by daxue consulting,2019 number of hotels in China

What China’s hotel structure may look like once fully matured

With the continuous improvement of the consumption level of Chinese, people’s demand for tourism and leisure activities continues to increase. The number of tourists in China and the scale of the hotel industry continues to expand. However, it is worth noting that the chain rate of the hotel industry in China is relatively low, only 26% in 2019. However, in tier 1 cities, for example, in Shanghai, 69% of hotels belong to a hotel Chain. At the same time, in terms of region, scale and grade, and product structure, the distribution is not yet balanced, and there is still much room for improvement in management, service, brand building, and chain development.

There should be a stable positive correlation between a country’s income structure and hotel scale structure. According to Dongxing securities, the current proportion of luxury, mid-upper scale, and budget hotels in China is 1:3:6, the proportion of high, middle and low-income classes is 1:4.5:4.5. This shows the hotel scale structure and the income structure of China is not totally matched Taking the relatively mature western hotel markets as a reference benchmark, the structure of China’s hotel industry will likely transition from 1:3:6 to 1:4:5, and the proportion of mid-to-high-end hotels will continue to expand and stabilize at around 44%. And under this market expansion, the mid-to-high-end market will have at least 3-8 years of high-speed growth, with guest rooms reaching 881-1,101 million, which will reach 76% to 120% of growth potential.

Overall, this means there is stronger demand for mid to high level hotels to develop in China.

The ‘sinking market’ accounts for mcuh of hotel development

As for the distribution of hotels across cities in China, the number of hotel facilities in  first-tier cities, sub-provincial cities or provincial capital cities, and other cities in 2019 was 27,000, 88,000, and 223,000, respectively: the weighted proportion is 8%, 26%, and 66%. Hence, a majority of hotels in China are located in cities except for first-tier cities.

Major cities in China hotel recovery performance.

Data resource: China Hotel Association, Qianzhan, inntie.com, designed by daxue consulting,2019 number of hotels in China

As for the hotel chain rate of China’s hotel industry, among the 338,000 hotel facilities in the country, there are 1,975 domestic chain hotel brands, with  4.5 million rooms. The number of non-chain hotel rooms is 13.1 million, and the hotel chain rate is 24.9%. Compared with more than 60% of hotel brands in developed countries, the hotel market in China has a massive room for hotel chain branding. Many Chinese hotels are what’s called zhaodaisuo (招待所), which are lower end accommodations options and are not listed in the worldwide accounts.

It is worth noting that the number of chain rooms in the hotel industry in China’s third and fourth-tier cities is 1.928 million, and the number of non-chain rooms is 9.1 million. The chain hotel rate in third and fourth-tier cities accounted only for 17%. Although most hotels in China located in third and fourth-tier cities, the penetration rate of hotel chains in third and fourth-tier cities is not high. Thus the sinking market in China has enormous development potential.

Chain hotel conversion rate comparison

Data resource: Frost & Sullivan, designed by daxue consulting,Chain hotel conversion rate comparison

As a result, leading hotel chain brands are targeting hotel development in lower-tier cities because the hotel market in first-tier cities is competitive. Residents in third and fourth-tier cities have gradually looking for higher-end entertainment facilities, such as middle and upper-scale hotels, which drive hotel chains to open up rooms for growth in lower-tier cities. As the low tier cities increase their economic output, the lower tier market will become the main battlefield for leading hotel brands in the future. High-quality mid-upper scale, budget, and soft brands (which are hotel brands that join a chain) will become the leading force in opening up the sinking market. The trend would gradually lead to a structural change in the distribution of the hotel market in China.

Fast post-Covid recovery

The pandemic has hit hard in the hospitality industry worldwide. Since 2020 H2, the hotel market in China has shown signs of recovery gradually. As for 2020 Q3, hotels’ revenue per available room (RevPAR) has reached 80% of the same period last year.

Through the review of the hotel industry dynamics, the demand for hotels in non-first-tier cities has recovered faster. Hotels in budget and mid-upper scales are more resilient to recovery because the budget hotels mainly provide local services. With post-Covid policies, people were not able to travel too far away from home. Therefore, the overall recovery effect is the best when combined with the rise of surrounding tours. Mid-upper scale hotels benefit a considerable amount from the recovery of meeting, incentive, conference and exhibition (MICE) services in China because they offer affordable prices and quality services.

Among the cities in China, Sanya has shown an incredible recovery sign in the hotel industry in China. Occupancy rate surpassed the same time last year since 2020 June. In 2020 August, the overall performance had fully recovered to 100% because Chinese tourists were urged to travel domestically. Sanya can be viewed as a substitute for international travel destination because of its beautiful tropical island landscape and tax-free policy.

major cities in China hotel recovery performance.

Data resource: Horwath, designed by daxue consulting, major cities in China hotel recovery performance. RevPAR is a metric to show a hotel’s ability to fill its available rooms at the average rate.

Takeaways for the hotel market in China

  • China’s hotel market has faced tremendous growth these years. The market potential is still far from the saturation limit.
  • Most hotels in China are independent hotels concentrating in lower-tier cities. Both domestic chain brands and international brands have plans to develop new hotels in the second-tier and third-tier cities.
  • Because of the Chinese consumption upgrade, Chinese consumers prefer to stay in mid-upper scale hotels than budget hotels, which will gradually lead to a structural change in China’s hotel industry.
  • The hotel industry in China has largely recovered from the Covid epidemic. Sanya, a substitute destination for outbound tourists, has even shown a greater performance than 2019 because of Chinese inelastic consumption and travel demand.

Author: Tong Zhu

Learn something new? Stay updated on the Chinese market by following our WeChat, scan the QR code below, or subscribe to our newsletter

daxue consulting WeChat QR Code

Learn about China’s Duty Free consumption

Listen to over 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

China Business Podcast
marketing research china
We are unable to validate your subscription, make sure your information is correct!
Thank you for your subscription!

Subscribe to our newsletter

Stay updated on the Chinese market

Contact us