China’s Hawaii to Face Hotel Slump as Supply Triples

Photographer: Qilai Shen/Bloomberg

A member of the security staff patrols a beach in Sanya, Hainan Province, China. Close

A member of the security staff patrols a beach in Sanya, Hainan Province, China.

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Photographer: Qilai Shen/Bloomberg

A member of the security staff patrols a beach in Sanya, Hainan Province, China.

China’s resort city of Sanya is expected to face a “huge correction” in its hotel market in the next two years as the supply of luxury accommodation triples by early 2013, the head of its tourism association said.

The average hotel occupancy rate in Sanya, located on the tropical island known as China’s Hawaii, will drop about 10 percentage points from last year’s 65 to 70 percent, Michel Goget, Ritz-Carlton Sanya’s general manager and chairman of the city’s Tourism Association, said in an interview yesterday.

“There’s going to be a huge correction between now and 2014 because there’s an oversupply,” said Goget, citing new additions by international chains in the city. “The demand is still not there. And the airport is almost saturated, so we are going to be all looking for the same business.”

The number of luxury hotel rooms will reach 21,000 in early 2013, he said, compared with 7,000 last year. China unveiled a plan in December 2009 to develop the southern Hainan province, where Sanya is the second-largest city, into an international tourism destination.

St. Regis Sanya and MGM Grand Sanya opened in December last year, adding a total of 1,384 rooms to the city’s hotel market, which will have an additional 14,000 rooms by 2015, according to Horwath Asia Pacific, which tracks the hospitality industry.

Hotel chains such as Starwood Hotels & Resorts Worldwide Inc. (HOT) and Marriott (MAR) International Inc. already have properties lined along Yalong Bay with private beach access in a location with a similar climate as Hawaii and Miami.

Tropical Weather

The island’s tropical weather has drawn travelers with an average winter temperature of 19.2 degrees Celsius (66.6 Fahrenheit), compared with cities such as the capital Beijing, which falls below the freezing point.

Hainan also hosts the Boao Forum for Asia, a gathering of government and business leaders modeled after the World Economic Forum in Davos, Switzerland. It’s also home to Hainan Airlines Co. (600221), backed by billionaire George Soros.

Ritz-Carlton is optimistic about longer-term prospects in Sanya and the outlook for its business in China. The Ritz- Carlton Sanya, opened about four years ago, is the brand’s most profitable hotel worldwide, Victor Clavell, Hong Kong-based vice president for the chain in the Asia-Pacific region, said in an interview in November.

In the next decade, China will account for 25 percent of hotels managed by Ritz-Carlton, the brand owned by Bethesda, Maryland-based Marriott (MAR), up from 10 percent last year, he said.

The number of internationally branded hotel rooms is expected to surge 52 percent by 2013 after rising 62 percent in the past five years, according to Jones Lang LaSalle Hotels, which tracks data in 30 Chinese cities.

“We have 300 million people in China, the size of America or Europe basically, that have the ability to buy for themselves a nice weekend,” Goget said. “People come to Sanya today at the Ritz-Carlton like they’re buying a Louis Vuitton bag. They’re spending like $400 or $500 to spend a night in here and then go back to Shanghai or Beijing to be able to have bragging rights.”

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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