Industry / Real Estate

Hospitality Real Estate (China)

Group Research / October 23, 2019

Photo Credit - AFP

Overall Outlook

Near-term sentiment kept trending south. Domestic tourism growth slowed down to 8.8% y-o-y in 1H19 from 10.8% in 2018. Yet, tourism revenue growth from domestic visitors sped up to 13.5% y-o-y in 1H19, vs. 12.3% in 2018. Lingering trade tensions have raised concerns over economic uncertainty, affecting business travel in recent months. According to a hotel sentiment survey conducted by Horwath HTL, all regions across the nation suffered from negative sentiments. Overall sentiment index was -32, the lowest level since the government’s anti-corruption campaign in mid-2013. Among five tier-1 cities, Shenzhen and Sanya have suffered the most, while Guangzhou is seeing better sentiment than other cities.

2) Investment sentiments might not recover anytime soon. Hotel assets have been the least favourable asset class among commercial properties, given the complexity of operation and low profitability. Rising redevelopment in 2016/2017 had improved the liquidity of hotel assets and helped value recovery. Yet, the number of hotel transactions dropped significantly in 2018, especially in 4Q18, given weaker sentiments amid uncertainty.

3) Revenue per room (RevPAR) dropped YTD. While the latest official operating numbers are not available, our channel check reveals that RevPAR has dropped YTD in most top-tiered cities. However, most domestic economy-driven cities have seen moderate improvement lately, except for Shenzhen and Shanghai, which have higher exposure to foreign trade. Only Guangzhou has registered positive RevPAR YTD, given limited new supply. Profitability is expected to drop given lower RevPAR and hotels’ higher operating leverage.

4) Future supply well controlled, given declining investments and rising redevelopment. Hotel fixed asset investments (FAI) from developers or local governments have become more rational, as reflected by the declining number of hotels since 2014. In addition, the central government is encouraging the long-lease rental apartment business and allows the conversion of commercial projects (hotels should be the major beneficiary) into long-lease rental apartments. We are also seeing the trend of converting luxury hotels into offices in tier-1 cities lately. In 1H19, acquired Beijing Jade Palace hotel in Zhongguancun, with the intention to convert it into office use.

Key Risks

1) Rising labour costs. Labour and training costs have been affected by high employee turnover. More competitive remuneration packages would have to be offered to attract qualified employees.

Near-term Outlook

Steady growth in domestic tourism. Urban disposable income grew 8.0% y-o-y in 1H19, vs 7.8% in 2018. Continuous growth in disposable income has been supporting tourism activities. According to China National Tourism Administration (CNTA) and China Tourism Academy (CTA), the number of domestic visitors grew by 8.8% in 1H19, slower than 10.8% in 2018, vs. a CAGR of 11.2% in 2013-2017. Tourism revenue from domestic visitors grew 13.5% in 1H19, vs. 12.3% in 2018.

To read the full report click the download link below.

Our In-House Expert

Ken HE Liang
+86 21 6888 3375

Related Reports

Disclaimers and Important Notices


The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.


General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment  banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States This report was prepared by DBS Bank Ltd.  DBSVUSA did not participate in its preparation.  The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize.  Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E