Room Rates at Shanghai’s Five Star Hotels eye New Record in 2006

According to latest statistics released by Jones Lang LaSalle Hotels, four and five-star hotels in Shanghai continued to trade positively for the January-November period of 2006, in line with earlier forecasts by the Jones Lang.

“The five star hotel segment in particular, is trading strongly with ADR well on track to exceed RMB1,700 for the first time. Although this is expected to come at an expense of occupancy rates, hotels are still maintaining healthy occupancy levels of about 71%. This partially signals operators’ willingness to accept lower occupancy for more aggressive room rates as well as a result of increased supply,” said Ms. Lily Ng Senior Vice President of Jones Lang LaSalle Hotels. In 2005, ADR grew for the sixth consecutive year to reach a historical high of RMB 1,649.

Market confidence in the Shanghai hotel market is evident from a recent investor sentiment poll Jones Lang conducted. “Our latest investor sentiment survey shows that investors are very upbeat about short term trading in Shanghai and Beijing, both riding on China’s economic and tourism boom. However investor expectations about medium term trading in Shanghai are more realistic, partially reflecting concerns over the upcoming supply of hotel rooms,” remarked Ms. Ng. “Notwithstanding, investors are eager to establish their presence in one of the fastest growing tourism markets in the region and a key gateway city to China.”

Ms. Ng added that, “Shanghai’s five-star hotels are the rate leaders in China and one of the highest amongst major cities in Asia. Robust economic growth and active cross-border investment activities, healthy convention and exhibition demand as well as leisure demand are expected to support the hotel sector. As the market absorbs the injection of additional hotel rooms over the next 18 to 24 months, we expect hotel operators to focus on ADR growth to enhance overall profitability.”

Investors surveyed by the Jones Lang LaSalle appear to share this confidence in the Shanghai market. The survey showed that Shanghai is the most sought after market in Asia by hotel investors, followed by Tokyo and Singapore. “Investors are keen to purchase hotel assets in Shanghai – the challenge is finding the right asset to invest in. Acquisition is the dominant strategy although investors are also open to developing hotels as a secondary strategy as investment-grade hotel assets are short in supply,” said Mr Glenn Bechtel, Senior Vice President of Jones Lang LaSalle Hotels based in Shanghai. Mr Bechtel heads Jones Lang LaSalle Hotels' investment sales division in China.

Trends in the Shanghai hotel industry

“Once known as the ‘Paris of the East’, Shanghai has a wonderful appetite for all things trendy and chic, making it the perfect environment for hotel players to experiment with new product concepts and ideas. This spirit is exactly why hotel brands such as W and HanTang Jumeirah chose Shanghai to be their launching pad in China,” said Ms. Ng. “Similar to the situation in Beijing, international hotels are making a mark in areas beyond the city centre. For example, the new W hotel will be located in Pudong while HanTang Jumeirah will be situated in the Luwan district.”

Ms Ng also pointed out that some hotel companies, like their counterparts in Beijing, are also attempting to grow their market share by operating in multiple locations using the same brand footprint. Ritz Carlton and Four Seasons, both presently in Puxi, are opening a second hotel in Pudong.

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