OREANDA-NEWS. Fitch expects the Chinese hotel industry to recover from the trough as the factors suppressing hotel spending have started to ease. These factors include the anti-corruption campaign which weighed on the spending on luxurious hotels, the outpace of new hotel supply to demand growth. At the meantime, the improvement in domestic transportation infrastructure, new investments and upgrading of domestic tourist spots, depreciation of RMB which makes travelling abroad less affordable for the lower income group will continue to boost the demand for visitor accommodation in China and underpin the recovery of hotel room occupancy and daily rate in the next 12-18 months.

The strong travel and tourism demand in China is driving the hotel industry recovery. In the first half of 2015, Chinese tourists spent a historical high amount of USD267bn within the border, up 14.5% y/y. Meanwhile, hotels in China has for the first time registered positive RevPAR (room occupancy rate * Average daily rate) y/y growth of 0.3% in 3Q15 and therefore reversed the downward trend which lasted for the past 4 years. For example, in Beijing, the strong year-to-date local demand growth of 8.7% vs. 4.4% supply growth helped the RevPAR of luxurious hotels in Beijing increased by 4.2% y/y in 9M15. (2013: -13.2%, 2014: -0.6%). Although outbound travel has grown quickly in recent years from a low base, domestic travel still dominates more than 80% of the total travel demand. And Fitch estimates the domestic tourist spending would continue to grow at double digits in the next five years.

Hotel room supply growth will increase by 17.9% in the next five years (4.2% p.a.) in China according to STR Global, a hotel industry expertise. With this pace of growth, it could to large extent accommodate all the new demand and drive the low occupancy rate of China hotels to a level close to developed countries. In China, four in ten rooms sit empty as a result of over expansion of hotel chains in early years. However, the oversupply of luxurious hotels outside of tier-1 cities will probably continue. According to STR Global, cities like Sanya and Chengdu would lead the most capacity expansion in China in the next five years by increasing the hotel rooms by 69.1% and 31.5% respectively. If the new demand growth in the city could not catch the new supply growth, the RevPAR of hotels in those lower tier cities would continue to be under pressure.