Could big China hotel expansion be a bust?

 US-based Starwood Hotels & Resorts just announced its popular Westin brand will open three new Westin brands in China, but some observers are wondering whether the surge in hotel building could be a mistake.

The expansion in China of hotel chains including Hilton Worldwide and others may be undermined by low demand as four in 10 rooms sit empty, writes Bloomberg News

Hilton Worldwide and Hyatt Hotels Corp. are also regularly revealing expansion plans but there are estimates that demand may be so slow that only four in ten rooms are being occupied.

China’s occupancy rate was 61 percent in the first nine months of this year, the same as the year-earlier period and the lowest in Asia after India among 15 countries, according to STR Global.

“The world’s biggest chains have been rushing into China, which overtook Spain last year to become the world’s third-most-visited travel destination after France and the United States, based on United Nations World Tourism Organization data,” said Bloomberg.

The number of internationally branded hotel rooms is expected to surge 52 percent by 2013. It rose 62 percent in the past five years, according to Jones Lang LaSalle Hotels.

“Hotels in some markets of China are clearly oversupplied in the next three to five years, and they won’t be generating good returns,” Nigel Summers, Hong Kong-based director at Horwath Asia Pacific, told Bloomberg.

He said China has undoubtedly had strong hotel demand but the question is whether it will be able to support all the new hotels being announced.

For example:

—Hilton will have 100 hotels in China by 2014, four times the number of properties it manages in the country now.

—For InterContinental Hotels Group Plc (IHG), owner of Holiday Inns and Crowne Plazas, one in four of the hotel rooms that it opens globally over the next five years will be in China, the company says.

— Hyatt said it has 31 hotels under development in China adding to the 14 already opened. The Chicago-based chain already has three hotels in Shanghai under the Hyatt brand.

— In the next decade, China will account for 25 percent of hotels managed by Ritz-Carlton, up from 10 percent now, according to company statistics.

“There could be short-term bubbles in the real estate market, but long term, we feel very positive about it,” Richard Solomons, chief executive officer of Denham, England-based InterContinental, said in an interview with Bloomberg.

Starwood Hotels & Resorts, whose properties include the Sheraton and W brands, may find China will eventually pass the US as the biggest hotel market, CEO Frits D. Van Paasschen said last summer.

Lower-end hotels are also moving into the market.

By David Wilkening