Any hotel executive that’s been around for any length of time will tell you sometimes the best deals are the ones you never make. As the 2008 Olympic games in Beijing wrapped up last month, the fact that London, and not New York City, was awarded the 2012 games appears to be a blessing in disguise for the local hotel market. While there has been much discussion, at least throughout U.S. lodging circles, that we’ve all learned past lessons about overbuilding and we wouldn’t fall into that trap again, I am not so sure. After all, when there are hundreds of thousands of visitors expected to descend on the host city, developers start seeing dollar signs no matter how much supply already exists. Within the last several months Chinese developers—with plenty of help of from U.S. brands anxious to expand their global footprint—scrambled to get their properties up for the summer games. The result was a 20% increase in supply in Beijing compared with the supply at the end of 2007, and nearly 6,000 hotels were already up and running in the city. That’s not to mention all of the owners that sank millions of dollars into property renovations when they were lured by the promise of an occupancy-led return on investment. Unfortunately, while Olympians were taking center stage and performing before capacity crowds at the “Bird’s Nest,” local hotel owners were wondering where their crowds were. Hotels located in the city’s main business districts certainly experienced a spike in occupancy, but those on the outskirts of the city had plenty of vacant rooms. By almost all accounts the games were a disappointment—for hoteliers. For all the foreign visitors the games generated, Beijing also lost of good portion of its meeting business leading up to the event as companies went elsewhere looking to avoid overcrowded hotels. According to Smith Travel Research Global, in the days leading up to the Olympics the market was recording average room rates of $219 U.S. dollars and occupancy levels below 60%. As further evidence of the market’s disappointing performance, as of Aug. 19—which was a mere five days before the end of the Olympics—only 77.6% of Beijing’s 22,300 five-star hotel rooms and 45.5% of its 34,500 four-star hotel rooms were filled, according to the Beijing tourism bureau. In addition, more than 60% of rooms in Beijing’s three-star or lower hotels were empty. To be fair, had New York been awarded the 2012 games, there certainly wouldn’t be the type of development that Beijing experienced even with the proposed redevelopment of the West side of Manhattan. For one thing, there are zoning issues and things like contextual architectural that are not given much thought in China. Nevertheless, developers can get pretty creative and supply would undoubtedly have increased if not significantly, at least modestly. But it is the city’s lack of supply that has insulated it from the effects of the current downturn and allowed rates and occupancy levels to remain relatively high. Beijing is in the process of learning a hard lesson and that is that short-term demand generators do not warrant a significant boost in supply. It will be interesting to see what happens to all this new supply in the coming months and years, but all those who were rushing to enter the market there may want to take a wait and see approach. Unfortunately for China, what seemed like a “golden” opportunity may actually turn out to be a losing proposition.
