CBRE Research has launched its Hotel Megatrends viewpoint which analyses the two megatrends currently reshaping the regional hospitality industry: increasing numbers of Chinese tourists, and growth of shared accommodation.
The Asia Pacific tourism sector has been booming in recent years, supported by a growing middle-class and rising household incomes, which are enabling more people to take holidays overseas—providing a significant opportunity for the hotels sector. Intra-regional tourism is forecast to grow by 286.3 million trips by 2020 and will remain the key demand driver as people are most likely to travel within the same region for their first overseas trip. International tourist arrivals to the region have also been growing steadily. United Nations World Tourism Organization figures show that the region welcomed 279.2 million international tourist arrivals in 2015 and is predicted to increase to 355 million in 2020.
However, despite the increase of tourist arrivals in recent years, hotel performance has been losing momentum. This mismatch between tourism growth and hotel performance is partially due to the struggling traditional full service hotel segment, which has found it challenging to maintain its price premium amid high fixed costs. In addition, revenue among hotels in this segment have been negatively impacted by weaker demand for meeting and convention facilities from multinationals, who remain very cost sensitive.
Chinese tourists provide significant opportunity for hotel sector
Much of the growth seen in the region’s tourism is being driven by China. The total number of Chinese outbound tourists rose by 10% year-on-year to 128 million in 2015, while spending grew by 26% over the same period to reach US$292 billion. China is expected to continue to lead growth, with around 134 million intra-regional trips forecast to be taken by mainland Chinese by 2020.
In 2015, China ranked in the top three tourism source markets for ten out of 12 major countries in the region. Chinese arrivals to Japan doubled on a year-on-year basis in 2015, thanks to the rapid depreciation of the yen and more accommodative visa policies. Elsewhere, Thailand, which remains the top destination for Chinese outbound tourists (excluding Hong Kong), recorded 71.7% year-on-year growth in Chinese arrivals in 2015. However, according to research by the Financial Times, Chinese tourists generally spend the largest portion of their budget on shopping and just a small portion on accommodation.
“China will continue to lead growth in outbound travel and spending. While previously Chinese tourists may have seemed reluctant to spend big on accommodation, there are signs that they are beginning to take a greater interest in hotel quality and service, and result in the greater appreciation of and spending on accommodation. This is a significant opportunity, but hoteliers need to ensure they provide a service offering that meets the requirements of this increasingly important demographic,” commented Robert McIntosh, Executive Director at CBRE Hotels, Asia Pacific.
Research indicates that Chinese tourists are not overly price sensitive towards accommodation—a 2013 survey found that only 10% of respondents selected price as their most important consideration when selecting a place to stay on an overseas trip.
“Chinese tourists are most concerned about the comfort, star rating and facilities offered by hotels, along with the hotel’s reputation and recommendations by friends and family or from travel sites. Cultural and language barriers, such as Mandarin speaking staff, signs and literature was also seen as important and Chinese travelers are increasingly demanding that hotels provide them with tailored services that better fit their culture, while helping them to overcome the language barrier,” Mr McIntosh added.
Shared accommodation poses major challenge
While the increase in Chinese outbound tourists will drive demand for accommodation, the rise of shared accommodation poses a major challenge for the traditional hotel industry. Advances in technology have made it possible for hosts to offer rooms or apartments for short-term rental via online platforms. Airbnb is the market leader, covering more than 191 countries and offering more than two million rooms or apartments for rent. Other active players include HomeAway, FlipKey, Rommorama and national level operators such as Tujia in China and Homie in Singapore.
The main competitive advantage of Airbnb is the lower price. In most Asia Pacific markets, Airbnb’s ADR (average daily rate) is lower than in traditional hotels, with the price gap over 200% in six markets. Aside from offering lower prices, properties on Airbnb often come with free amenities such as a washing machine and kitchen, which traditional hotels rarely offer.
Price difference between hotels and Airbnb
“Short-term rentals are increasingly used as a substitute for hotel rooms. At the same time, the growth of shared accommodation is posing a major challenge to the traditional hotel industry. The ability to offer consumers lower prices and a unique experience in often unconventional accommodation is prompting traditional hotel operators to rethink their operating models,” said Ada Choi, Senior Director of Research, CBRE Asia Pacific.
“The growth of shared accommodation does pose a longer-term challenge for the hotel industry, especially during peak seasons, and this trend has prompted hotel operators to review their operational models. Several multi-brand hotel chains have responded by expanding their portfolios to the affordable segment with younger travelers in mind. These hotels have utilized innovations such as mobile check-in services and more open spaces and common areas for guests to socialize with each other, all at a lower price point,” Mr McIntosh said.
The report also provides recommendations for hotel operators on how best to respond to these trends.