This report analyses the performance of Greater China’s Hotel Market Greater China Hotel Report knightfrank.com/research May 2021 GREATER CHINA HOTEL REPORT 2021 OVERVIEW The COVID-19 pandemic has caused devastating disruption to the travel and hospitality industry across the world, leading to unprecedented economic and social consequences. In the face of the pandemic, most countries around the world imposed partial or complete border closures, with travel restrictions affecting the majority of the world’s population. China was the first country affected by the past 15 years, especially in February the health crisis, so its hotel industry and March, with the figure dropping to was the first to see the effect. With strict With no end in sight single digits. It was also the first time in 15 travel restrictions in various parts of to the COVID-19 pandemic years the ADR of five-star hotels dropped Chinese mainland, the hotel business below RMB900. Despite the pandemic, and the resumption of was badly shaken in the absence of seven luxury hotels opened in Shanghai inbound tourists in 2020. However, the international cross-border in 2020, adding 1,491 guest rooms to impact among cities was uneven. tourism activity, the the market. The local tourism market pandemic will continue gradually rebounded in 2H 2020, boosting Because of the pandemic, the number of the recovery of the hotel sector. international visitor arrivals to Beijing to be a drag on business plummeted by 91% YoY to 341,000 in performance in the Guangzhou received 2.1 million 2020. As a result, the hotel industry was hotel industry in the international overnight visitor arrivals severely affected. In 2020, the average Greater China region in 2020, plummeting by 76.7% YoY, and occupancy rate of five-star hotels in total revenue for the tourism industry Beijing dropped significantly by 41.1 in 2021 and beyond. dropped by 39.9% YoY to RMB267.9 percentage points to 29.9%. The Average billion. The ADR of five-star hotels in Daily Rate (ADR) plunged by 6.5% YoY Guangzhou dropped by 21.3% YoY to to RMB850. On the whole, the hotel RMB629.4 in 2020. The occupancy rate in industry started to pick up in 2H 2020. 2020 dropped by 14 percentage points to Six luxury hotels were opened in Beijing In Shanghai, the number of international 61.2%. Three luxury hotels were opened in 2020, adding 1,692 rooms to Beijing’s visitor arrivals decreased sharply from in Guangzhou in 2020: the Southern hotel market. The US-based Hilton 8.9 million in 2019 to 1.3 million in 2020, Airlines Pearl Hotel, the Elegant Hotel, Hotels continued its quick expansion a decline of 85.7% YoY. Business travellers and the Guangzhou Aoyuan Sheraton in China even during the pandemic. made up the lion’s share of total visitor Hotel. The domestic economy gradually The group opened two upscale hotels in arrivals because of the implementation recovered, and the pent-up desire to travel Beijing in 2H 2020: the Hilton Beijing of strict entry quarantine regulations. was released when the pandemic-related Daxing and the Hilton Beijing Tongzhou The average occupancy rate of five-star restrictions were eased. Beitou. hotels in 2020 fell to the lowest level in Table 1. Economic indicators (2020) Beijing Shanghai Guangzhou Shenzhen Hong Kong Macau Taipei GDP growth (YoY) 1.2% 1.7% 2.7% 3.1% -6.1% -56.3% 3.0% GDP per capita RMB167,640 RMB159,384 RMB 133,959 RMB205,898 HK$362,310 MOP 285,314 NT$837,742 Retail sales value RMB1,371.64 RMB1,593.25 RMB 921.9 RMB 866.5 HK$326.5 MOP45.2 NT$4,639.2 (billion) Retail sales value -8.9% 0.5% -3.5% -5.2% -24.3% -41.5% -0.5% growth (YoY) Foreign direct 1.3% 6.2% 7. 5 % 11.8% -34.4% (2019) 21.2% (2019) -18.3% investment growth (YoY) Unemployemnt rate 5.2% 4.3% 2.5% 2.5% 5.5% 2.7% (Q4) 3.7% Inflation 1.7% 1.7% 2.6% 2.3% 0.3% 0.8% 0.1% Source: Local statistics departments / Knight Frank Research 2 GREATER CHINA HOTEL REPORT 2021 Shenzhen’s hotel industry was severely However, amid the market uncertainty, affected by the pandemic, with a several hotel projects that were originally Chart 1. International massive drop in visitor arrivals. In scheduled to open in 2020 delayed their overnight visitor arrivals, 2020, the total number of international openings, including The Lisboeta Macau 2020 overnight visitors in Shenzhen fell (820 rooms), The Grand Lisboa Palace Million people by 90.1% YoY to 1.2 million. Despite (1,900 rooms), and the Galaxy Macau 3 the poor market, some luxury hotel (3,000 rooms). brands maintained a positive long- term outlook. During the year, 13 new Taipei’s tourism industry was severely 2 luxury hotels were opened in Shenzhen, hit with unprecedented challenges in providing an additional 3,209 rooms. 2020. According to the Tourism Bureau 1 Among these five-star hotels were of Taiwan, international visitor arrivals The Renaissance Shenzhen Bay Hotel to Taipei dropped significantly to 1.4 (293 rooms), The Hilton Garden Inn million in 2020, down 88.4% YoY as a 0 Shenzhen International Convention result of border controls. The average BJ SH GZ SZ HK MO TP and Exhibition Center (407 rooms), and occupancy rate of Taipei international Source: Knight Frank Research the Andaz Shenzhen Bay (220 rooms), a tourist hotels fell to 38% from 75% in brand under the Hyatt Hotel Group. In 2019, and ADR was down 25% YoY to 2021, two five-star hotels are expected to NT$3,464. The total operating income Chart 2. Five-star hotel open in Shenzhen, the Shenzhen Conrad of Taipei international tourist hotels in stock, 2020 Hotel (298 rooms in total) and the W 2020 plummeted by 46% YoY to NT$32.2 Thousand rooms hotel, Shenzhen Jinsha Bay (350 rooms). billion. In 2020, despite the pandemic, 50 three new luxury hotels opened, adding 45 40 Hong Kong’s inbound tourism collapsed 621 rooms: the Hotel Indigo Taipei 35 in 2020 because of the pandemic. The North (149 rooms), the Mitsui Garden 30 city had only 1.4 million international Hotel Taipei Zhongxiao (297 rooms), and 25 overnight visitors, a significant plunge of the Hotel Resonance Taipei (Tapestry 20 94.3% YoY. Amid the devastating market Collection by Hilton) (175 rooms). 15 10 situation, some hotel operators in 5 Hong Kong transformed their business With no end in sight to the COVID-19 0 models and accepted long-term rentals, pandemic and the resumption of BJ SH GZ SZ HK MO TP while others considered converting international cross-border tourism Source: Knight Frank Research their properties to other uses, such activity, the pandemic will continue to as coworking or residential space, to be a drag on business performance in increase rental income. Given the poor the hotel industry in the Greater China Chart 3. Five-star hotel market conditions, many hotel operators region in 2021 and beyond. Nonetheless, room rate in 2020 put their opening plans on hold. Only we are cautiously optimistic about the two new High Tariff A hotels opened in outlook for hotel industry performance, ADR (US$) 2020 – The Hari Hong Kong (210 rooms) as domestic leisure tourism, which 250 and The Sheraton Tung Chung (218 restarted in Chinese mainland, has 200 rooms). In 2021, three more High Tariff A already provided good support for the hotels are scheduled to open – The Hotel recovery of the industry in the Mainland. 150 Alexandra (840 rooms), The Silveri, In the post-COVID-19 era, fuelled by MGallery by Sofitel (206 rooms) and the the expansion of China’s middle class 100 Regala Skycity Hotel (1,208 rooms). and the overall upgraded consumption 50 capacity of Chinese consumers, we In Macau, the number of international remain confident in the long-term 0 inbound visitors plunged 85% YoY to outlook for the Greater China hotel BJ SH GZ SZ HK MO TP Source: Knight Frank Research 5.9 million in 2020. The city received industry. only 2.8 million international overnight visitors, a sharp decrease of 84.9% YoY. In 2020, the overall five-star hotel occupancy rate was only 25.1%, and the ADR for five-star hotels was MOP1,351, a The hotel sector globally is facing unprecedented challenges, as the travel 17.8% drop YoY. Macau’s overall market restrictions and lockdown measures have resulted in a halt to international tourist sentiment was weak in 1H 2020 because arrivals. Nonetheless, on the back of the huge pent-up travel demand in the of the pandemic. But with the gradual post-COVID era, coupled with the strong potential demand for both leisure and relaxing of travel restrictions and business travel generated by the Greater Bay Area initiative, the longer-term removal of the mandatory quarantine prospects for tourism in the Greater China region remain positive. requirement for Chinese tourists in 2H, Macau recorded a quarterly surge of Martin Wong 150.3% in visitor arrivals in Q4 2020. Director, Head of Research & Consultancy, Greater China 3 GREATER CHINA HOTEL REPORT 2021 BEIJING No. of 5-star hotel rooms New supply of 5-star hotel Average daily rate Hotel o ccupancy by 2020 (room) rooms in 2020 (room) (ADR) in 2020 rate in 2020 44,163 1,692 RMB 850 29.9% (-6.5% YOY) (-41.1ppt) OVERVIEW As a result of travel restrictions revenue was only US$480 million, a pandemic, during the Spring Festival in around the world due to the COVID-19 decrease of 90.8% YoY.