Officials from the Beijing Municipal Government and the Beijing Municipal Commission of Development and Reform have already announced that they will not restrict hotel room rates during the Olympics. Three-star hotel rates are expected to be around $350 and luxury five-star hotel rates are set to range from $500-$800. For a normal bed in youth hotels, the rate will be increased to 600-800 yuan ($80-$105), from the current 80-100 yuan ($11-$13).
Budget hotels highlight growth
Cao estimated that the hotel occupancy rate in Beijing in 2007 will increase to 72-75 percent from the current level of 69 percent. Post-Olympics prospects, however, are less than promising. It is estimated that by the commencement of the Olympics, there will be 6,500 five-star hotel rooms within 4 km of the CBD. How to increase the post-Olympics occupancy rate of these rooms is definitely an issue for hotel managers to consider.
At present, the proportion of luxury to mid-range to budget hotels in developed countries is 1:4:5, whereas China's existing proportion seems unreasonable. There is a serious shortage of budget hotels, and therefore, the increase of this type of hotel has become the focus of growth. There has been little change in the return on investment for luxury hotels, which still require an extended period to generate a decent return.
In summarizing the development trend of the hotel industry in Beijing, Cao pointed out:
Operational costs are continuing to increase. Average staff salary growth is higher than room rate growth. If occupancy rates remain the same, profitability will continue to decrease.
Management and facilities are localized. Most of the hotel facilities are localized. The number of foreign staff in five-star hotels has decreased to three to four people from the previous 20 to 30 people. Costs for foreign management, maintenance and upgrading have decreased.
Hotel customers are mainly Chinese. Attention should be paid to the change, in which the majority of customers in star-rated hotels will be locals instead of foreign tourists.
A graph of the hotel industry appears like a dumbbell. On one side, five-star and six-star hotels are emerging one after another; on the other side, budget hotels with a room rate of 200 yuan ($26) are popping up everywhere.
According to Andreas Flaig, Executive Vice President of Jones Lang LaSalle Hotels, the cost of building hotels in the Beijing metro area is very high and if hotels are not positioned in the super-luxury category, they will find it hard to operate. Some existing small residential buildings and company dormitories can be converted to budget hotels in order to harvest a profit with low costs and a high occupancy rate.
Capital accelerates to occupy the market. By acquiring small-mid brands, large international groups can quickly enter the hotel industry of Beijing.
Sharing the pie
Customers prefer renovated old hotels. Cao believes that investing tens of millions or even hundreds of millions of yuan in renovating old hotels improves efficiency and profitability equally. The Crown Plaza Hotel and Resort, located in Wangfujing, reopened in 2007 after a complete overhaul. Its overall room rate has increased by 35 percent, its occupancy rate has reached 80 percent and the ballroom rental rate has increased by 30 percent.
Taking advantage of the surrounding environment to improve supporting facilities is also another trend. In the past, hotels used to occupy stand-alone buildings. Now, hotels usually reside in an integrated commercial complex so that they can take advantage of facilities in the surrounding shopping centers and tourist destinations to provide comprehensive services and improve their overall competitiveness.
The Oriental Plaza, standing on Chang'anjie Avenue, is home to the longest indoor shopping street in Asia, eight 5-A office buildings and dozens of Fortune 500 companies, all of which have provided stable high-end business and tourist customers for the Grand Hyatt Beijing. Beijing China Central Place, completed in 2007, contains a dozen of the world's top businesses, a gigantic shopping mall and two five-star hotels--the Ritz-Carlton and JW Marriott.
Increased Olympic themes and local cultural themes are something hoteliers are latching onto. Chinese restaurants are currently the most expensive and most luxurious restaurants in most hotels, and their turnover is higher than that of Western restaurants. Chen Jian, Chairman of the Beijing Olympic Economy Research Association, suggested that the focus should be on themes creating Olympic cuisine, providing traditional Chinese food, Chinese local cultural exhibitions and promotions. Efforts such as these will greatly benefit any hotel.
Trying to obtain the qualification for receiving Olympic guests is key. The qualification for receiving Olympic guests will undoubtedly generate the most profit during the Olympics. Xiang Ping, Vice Director of BOCOG's Games Services Department, stated that the current 112 star-rated hotels that have obtained qualification are mainly located to the north of Chang'anjie Avenue, close to the competition venues and Beijing's luxury shopping district. However, there is still a large gap in guest accommodation capacity. The first group of 253 non-star-rated hotels have passed inspection and obtained the qualification for receiving Olympic guests. Xiong Yumei, Deputy Director of the Beijing Tourism Administration, estimated that by 2008 there will be 1,000 qualified hotels. These hotels will provide over 50,000 rooms, with more than 100,000 beds, in 2008.
Utilizing environment-friendly facilities and those for the disabled is important. Xiang suggested that hotels should use environment-friendly construction materials and paint for renovations, and pay attention to details including reclaimed water, waste recycling, and water- and electricity-saving. Facilities also should be offered for disabled people.
Pre-heating the exhibition economy is important to surviving in the post-Olympic era. Luxury hotel revenue comes mainly from conferences and exhibitions. According to Cao, historically, each Olympic hosting city's post-Olympic turnover in hotels, office buildings and commerce declined significantly. However, the exhibition industry experienced growth instead. Many international conferences tend to be held in cities that were recent Olympic hosts.
The Beijing Municipal Government has won the hosting right for a dozen international conferences during 2008-09. Over 10 hotels, including the China World Hotel, have completed an overhaul of their conference facilities.