Nov. 18 (Bloomberg) -- Expansion in China, the world’s fastest-growing economy, is causing an urban lodging glut that’s spurring luxury chains including Starwood Hotels & Resorts Worldwide Inc.’s St. Regis to head to areas as remote as Tibet.
The 162-room St. Regis Lhasa Resort, which opened this week as the first international luxury hotel in Tibet’s capital, is about 12,000 feet (3,680 meters) above sea level and boasts a five-star spa. Shangri-La Asia Ltd. will open a 350-room hotel in Lhasa in 2012, and InterContinental Hotels Group Plc plans to add a high-end, 2,000-room hotel in the city within three years.
The surge of hotel development in China has led to an oversupply, particularly in cities, and it may take five years for demand to catch up, said Jonas Ogren, a Singapore-based director for STR Global, an industry research company. That’s made Tibet and other regions far from Beijing and Shanghai increasingly attractive to expanding hoteliers.
“While Tibet isn’t necessarily the first location that comes to mind for a hotel, these companies usually already have properties in primary and secondary cities,” Ogren said. “So more are looking to smaller markets or resort-type places.”
Hotel occupancies in China climbed to 60 percent this year through September from 51 percent a year earlier, according to STR Global. This year’s level was the fourth-lowest among the 16 countries in the Asia Pacific region tracked by the company.
In Tibet, ruled as an autonomous region in the People’s Republic of China, tourism has surged since the opening of the Qinghai-Tibet Railway four years ago, largely driven by domestic demand. A total of 5.56 million tourists visited Tibet in 2009, up 147 percent from a year earlier, according to the Pacific Asia Travel Association. Of that, 5.39 million were domestic travelers.
‘Demand for Luxury’
“There’s a great deal of affluence in China,” said Judy Reeves, a spokesman for Shangri-La Asia, based in Hong Kong. “So much wealth has been created. The demand for luxury is insatiable.”
China, whose population is projected to climb to 1.4 billion from 1.3 billion in the next five years, may account for a record 30 percent of global growth over the next decade, UBS AG said earlier this month. The country will overtake the U.S. to become the world’s largest economy by 2020, according to a Nov. 15 report from Standard Chartered Plc.
Starwood, which partnered with Lhasa Yungao International Hotel Co. in developing the St. Regis in Lhasa, expects to add 86 hotels to the 62 it has in China, making the country its largest hotel market after the U.S. The hotelier, based in White Plains, New York, already has a 102-room Four Points by Sheraton in Lhasa.
IHG, which operates 137 hotels in China, has 149 more in the pipeline, the Denham, England-based company said in June.
Olympics in Beijing
“There was something like 52 new hotels opening up for the Olympics in Beijing,” said Dave Horton, global head of Hilton Hotels & Resorts. “They went from 100 percent occupancy during the Olympics to 20 to 30 percent occupancy now.”
Hilton Hotels & Resorts is the unit of McLean, Virginia-based Hilton Worldwide that oversees the company’s namesake brand. The division operates eight properties in China and has 34 more planned. Some of the locations the company is adding are in regions that attract more domestic and business travelers than overseas tourists.
“Being first in a market and to build a property where locals have weddings and events means that, when they come to America, they will stay with us,” Horton said.
Shangri-La, based in Hong Kong, has 33 hotels in China and 15 more in the pipeline, in such remote regions as Diqing in the Yunnan province to the country’s south and Manzhouli in the Hulunbuir grasslands in northern China, according to the company’s website.
Churned Butter Tea
Shangri-La’s Lhasa hotel will include traditional Tibetan architectural motifs and interiors. Guest rooms will start at 388 square feet (36 square meters), and many will offer views of the Potala Palace.
Visitors will be able to experience Tibetan welcome rituals and the local hand-churned butter tea. The property also will feature a full-service clinic to attend to guests who suffer from altitude sickness. Tibet is the highest region on Earth, with an average elevation of 16,000 feet.
“It’ll likely pay off for these forerunners in Tibet,” said Ogren of STR Global. “For the immediate future, they’ll have a competitive advantage in that region. Luxury today is not about champagne and caviar but about experiencing something your neighbor hasn’t. It’s about experiencing champagne and caviar at Everest Base Camp.”
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