Boutique hotels on the rise in China

PuLi Hotel and Spa in Shanghai (PuLi Shanghai)

From 2009 to 2015, China saw an 11-percent annual average jump in the number of hotel rooms, according to The Wall Street Journal’s calculations from National Bureau of Statistics data. But this growth has had an effect on profits: STR reported that in the first three quarters of 2016, ADR in China dropped by 2.5 percent and RevPAR fell by 0.5 percent. 

Still, these numbers aren't slowing down investors keen on targeting a lucrative demographic. As we noted last week, global companies are launching China-specific brands—but Chinese companies are also launching boutique brands to cater to new tastes and a growing demographic.   

Cachet Hospitality Group is a Shanghai-based company with boutique hotels in Shanghai, Los Angeles, Bangkok and Cabo San Lucas, Mexico. In China, it is looking to open properties in Shaoxing, Kunming, Hangzhou, Chengdu and Wuhan.

Yvonne Choi, Cachet’s CMO, said that there while global brands are growing rapidly across China, there is sufficient demand for smaller properties to make boutique investment worthwhile. “Chinese consumers have seen huge growth in purchasing power, they are in tune with entertainment trends and they want to stay in a place where they can brag to friends,” she told the Wall Street Journal.

Urban Resorts Concepts, also based in Shanghai, manages the The PuLi Hotel and Spa in Shanghai’s Jingan District. The company is expanding to Beijing and Xiamen as well as Kuala Lumpur, the Maldives and Lombok, Indonesia. Urban Resorts Concepts CEO and co-founder Markus Engel echoed Choi's sentiments that in spite of the hotel influx, there is still plenty of demand for boutique properties. 

Still, the rapid growth in hotels across primary, secondary and tertiary cities in China is also driving competition—which may make things difficult for independent, boutique hotels that lack the support provided by global corporations like Marriott, Hilton and Hyatt. 

What isn’t clear, though, is whether popular boutique hotels will be able to maintain relatively high rates in the face of growing competition. The PuLi, for example, has an average room rate of 2,400 yuan ($346).

Goodwin Gaw, chairman and co-founder of private-equity fund manager Gaw Capital Partners, which has acquired numerous hotels over the last few years, said that many luxury hotels in China are owned by wealthy domestic investors who view them as status symbols. “The owners like to have a place to entertain their friends and these hotels are built to very high specs,” Gaw told the Journal. “You can’t justify the cost.”