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May 1, 2014

Does China Have Too Many Luxury Hotels?

China may be facing a case of oversupply in its luxury hotel scene. 

"When a new market opens up it is quite normal that you will see a lot of new supply go in," Clement Kwok, CEO of Hong Kong and Shanghai Hotels tells CNBC. "At the moment many people see great future prospects for China and they are building hotels in China." Hong Kong and Shanghai Hotels is the owner of the brand Peninsula with a total of nine hotels across the U.S. and Asia. The group has hotels in Beijing, Shanghai and Hong Kong, and is looking toward second-tier cities in China for future development.

According to the article, Shanghai alone has more than 1,000 luxury hotel rooms that were added to the market in 2013. "Definitely our room rates are lower than would be the case if there was less supply - that will always be the case," Kwok adds. "If there wasn't competition it would mean that the market we are operating in is not a desirable place."

Whether or not these hotels survive comes down to a matter of quality. Hoteliers often face the issue of balancing the necessity to invest in upgrades and renovations. Battling the competition is easy by keeping the product fresh while keeping margins under control.

"Who has the long-term staying power? We do not yet know," says Kwok. "We are still in the early stages of the game, and there's still a lot of the game to be played."

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About the Author: Meagan Drillinger





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