Text size:

China luxury hotel glut too much of good thing

Los Angeles Times | Tribune Newspapers

March 9, 2009

BEIJING—Financial crisis? What financial crisis?

The owners of a new, ultraluxury hotel maintain an air of confidence in the face of adversity. The 234-room Pangu Plaza, which opened in December, charges as much as $17,750 a night for a suite. The sushi bar, where the cheapest lunch special is $265, cooks its rice in mineral water flown in from Japan. The walls in the hotel are covered with silk; the floors with marble—Italian, of course.

"The Chinese new rich have plenty of money. We have Bentleys pulling up with no number plates, so you can tell that they're brand new," said room manager Dennis Seng, scoffing at the suggestion of inauspicious timing for opening a luxury hotel.

"The other day, a Russian couple ran up a $4,000 tab at an intimate lunch for two in the Japanese restaurant," he said.

His confidence, however, is belied by the cavernous, empty lobby, where the only sound is the tapping of the high heels of the crisply attired staff. No paying customers were evident during a weekday afternoon visit, although Seng said occupancy has reached "up to 30 percent."

If that is the case, the Pangu is faring far better than dozens of other newly opened hotels here.

It might be simply a glut of luxury.

"Everything that the developers are building is 'luxury' or 'imperial': luxury apartments, luxury shopping mall, luxury hotels," said Hu Xingdou, an economics professor at the Beijing Institute of Technology. "But this is not what the Chinese people need or can afford."

Whereas Pangu overlooks such 2008 Summer Olympic landmarks as the Bird's Nest and the Water Cube, the new Regent Hotel boasts a panoramic view of the Forbidden City.

The Park Hyatt opened in December on the upper floors of a new skyscraper; it touts itself as the highest hotel in Beijing, with 360-degree views from a 66th-floor restaurant.

Adjacent to the Summer Palace is the new Aman hotel, part of which is located in original imperial guesthouses. The cheapest room is $480 in the off-season.

"You had so many new hotels opening in the Olympic lead-up and even afterward. [Even] if it was business as usual, and we didn't have a financial crisis, this would have been a tough year," said Damien Little, a director of the hotel consulting company Horwath Asia Pacific.

His company counted 126 hotel openings in Beijing last year, adding 29,000 rooms. Hotels that missed their deadlines for completion are still opening.

Even the Olympics were disappointing for Beijing's hotel industry. Despite advance word that all hotel rooms would be sold out during the Games, hotels were only 67 percent occupied during August, the Olympic month, according to STR Global, a hotel research business.

China's tourism business also was badly hurt by the government's decision to sharply limit the number of foreign visitors during the Olympics, making it difficult for many people to get visas.

"The visas were a debacle. It was a real slap in the face to the hotels," said Ian Billard, a business advisory services manager at the U.S.-China Business Council.

"You're now talking about 10 to 30 percent occupancy in hotels that were counting on 70 to 80 percent."

Perhaps the only relief for Beijing's beleaguered hotel industry is that the most feared competitor, the Mandarin Oriental, will not open anytime soon. The unopened hotel, in the China Central Television compound co-designed by architect Rem Koolhaas, was gutted in a fire last month.

"Nobody wants to say it, but that's one less hotel," Little said.