Tourism from China buoyed Taiwan’s hotel sector during former President Ma Ying-jeou’s eight years in office, spurring hoteliers to refurbish aging properties and add thousands of new rooms to the market. Resilient demand helped hotels post enviable earnings.
That golden era ended swiftly with the inauguration of President Tsai Ing-wen in May. Irked by Tsai’s refusal to explicitly acknowledge the 1992 consensus – a tacit agreement that Taiwan and mainland China are both part of the same Chinese nation – the Chinese authorities tightened restrictions on tour-group travel to Taiwan. As a result, the number of Chinese tourists on group tours has fallen roughly 30% since May. Taiwan’s Tourism Bureau estimates that Chinese tourist arrivals will fall by about 600,000 this year.
Some market observers say hotels will have difficulty making up for the loss of those Chinese visitors, despite rising arrivals from South Korea, Hong Kong, and Southeast Asia. The problem is not only that overall tourist arrivals are decreasing, but that hoteliers are continuing to add room supply even as existing hotels struggle to attract guests.
“I would be concerned that the sheer volume of new hotels coming online this year is going to put a crimp on the occupancy rates for all hotels,” says Mark Stocker, managing director of branding consultancy DDG, which has worked with numerous hotel clients. “There will be a clear downward trend in occupancy and in room rates as competition intensifies.”
Stocker says Taiwan’s tepid housing market has spurred companies to tap the hospitality sector for growth. “One of the underlying reasons we are seeing so many hotels now is not just because of the belief that tourism will grow,” he observes. “It is because there is no money in selling apartments anymore, and hot money from insurance, land owners, and builders is chasing a return.”
The expansion plans of some firms belie concerns of market saturation. Fubon Hospitality Management, an affiliate of Fubon Financial Holding Co., launched its first hotel in August in Taipei’s Daan district. Fubon has branded the property – named Folio – as a “boutique hotel” – a label used by dozens of Taiwan’s new hotels. According to an August report in the English-language Taipei Times, Fubon plans to launch four “larger-scale” hotels in Taiwan over the next five years. One of those properties may be in Taipei’s Xinyi district, which already has a Grand Hyatt, Meridien, and W within walking distance of one another.
Huang Hsiang Construction Co., a New Taipei City-based property developer, is another new entrant to the hospitality sector. The company announced in June it would partner with international hotel operators in a bid to guarantee stable revenue. According to the Taipei Times, Huang Hsiang and Marriott International will partner on a five-star hotel in Taipei’s Shilin district and another in the city’s Datong district. Huang Hsiang will also set up a Hotel Gracery with the Japanese hotel chain Fujita Kanko in Taipei’s Zhongzheng district.
Reasons for optimism?
Some analysts say Taiwan’s hotel market still has room for growth. Ping Lee, senior research manager at property consultancy CBRE in Taipei, told Taiwan Business TOPICS in an interview that local and foreign investors “hold a relatively positive attitude towards hotel market prospects,” noting that total visitor arrivals in Taiwan rose 8% on an annual basis through July even as Chinese tourist numbers dropped.
Lee acknowledges that hotel occupancy rates have stopped rising – for now. In the first half of the year, they fell by 1.5 percentage points to 67%, according to Taiwan’s Tourism Bureau. Yet average room rates rose 3.4% year-on-year during that same period, Lee observes. “The mismatch between tourism growth and relatively weak hotel performance was partially due to decreased demand from business travelers,” she says. “In addition, design hotels operated by smaller brands and independent hoteliers have become more popular.”
A July article in this magazine noted local hoteliers’ concerns about falling business traveler arrivals. At an industry forum in Taipei last month, hotel operators pointed out that the number of business travelers to Taiwan has fallen 20% in the past decade as the island’s economic competitiveness has waned. In the long run, that trend could be a greater threat to the Taiwan hotel sector than a drop in Chinese tourist arrivals.
Meanwhile, DDG’s Stocker says that large conglomerates such as Cathay Hospitality see strong revenue-earning potential in food and beverage outlets. “They aren’t just banking on hotel rooms for revenue,” he says. “The smarter hoteliers have branded their restaurants and cafes, are now expanding beyond the hotel lobby, opening stores at other locations, independent of the hotel. Cozzi Cafe from Cozzi (owned by Cathay Hospitality) has already gone down this route.”
As for hotels themselves, “clearly somebody somewhere has sold the idea that growth opportunities in owning a hotel make sense,” Stocker says. “But I believe these are based on unrealistic expectations and a lack of consideration about competition. We are in for some painful years ahead.