WHotels Group, part of the world’s largest hotel owner Starwood, has reportedly cancelled a management contract to run a luxury hotel for Sun Hung Kai Properties in Shanghai because of the economic downturn.The contract to run the $8HK billion development had been affected by business travellers staying at home, said sources familiar with the situation.
The hotel in Shanghai IFC is due to be completed next year. The entire project is scheduled to be finished in the first half of 2011. Neither SHKP nor WHotels was available for comment.
In 2004, SHKP and Starwood signed a letter of intent allowing WHotels to manage one of its two luxury hotels in Shanghai IFC in Lujiazui, part of the Pudong financial district. Ritz-Carlton will manage the other hotel. According to SHKP’s development plan, the two hotels will have 656 rooms. SHKP might convert the rooms, originally to be run by WHotels, into serviced apartments but no final decision had been made, sources said.
“Luxury hotels have been hard hit as the global financial crisis spread,” said Lee Hing-yin, the director of research and advisory for East China at property consultancy Colliers International. Room rates for five-star hotels had dropped 15 to 25 per cent since they peaked in late 2006, he said.
Five-star hotels now charged about 1,200 yuan ($HK1,362) per room per night from a previous 1,400 yuan and 1,600 yuan in 2006, he said. “Four and five-star hotels are struggling at an occupancy rate of about 50 per cent,” he said.
He said the abundant supply of new hotels had also applied pressure to the sector as about 3,000 to 4,000 rooms per year would be added in Shanghai over the next two years.
Faced with a liquidity crunch, developers had been forced to slow down construction work as hotels needed a longer time to break even, said analysts. Early this year, work on two luxury hotels jointly owned by Leo Investment of the United States and Shui On Private Group in Shanghai was suspended amid the global credit crunch.
Besides Shanghai, Beijing will also be hard hit by the glut of new hotels for the next few years. According to hospitality industry consultancy Horwarth, 75,651 new rooms will be opened next year across the mainland, bringing the total to 913,399. The new supply will further increase 7.8 per cent to a total of 984,655 in 2012.
In its survey, most hoteliers held a bleak outlook for international demand this year as performance across foreign corporate and foreign leisure groups becomes worse. Andreas Flaig, the managing director of Jones Lang LaSalle Hotels for China, however, said there were no signs international brands were pulling out of the mainland despite a decline in room rates and occupancy rates.
“Credit liquidity has improved since summer as lending in the real estate market is a lot easier for developers,” he said. (from South China Morning)
