Winter Is Coming for Budget Hotels.docVIP

Winter Is Coming for Budget Hotels After a decade of dramatic boom and expansion， China’s budget hotels that are themed with three-star hotels and hostels seem to be waving farewell to its golden age of growth and seeing a winter freeze coming. Meanwhile， the prospect of upscale hotels is not that rosy either owing to policy restriction. Hoteliers need another outlet， which for now is the middle-priced market. Following the path of Home Inn， Jinjiang Star and GreenTree Inn， Dongcheng Hotel Group （formerly known as City Express Hotel） lately an- nounced its intention to enter the middleend market. Board Chairman and CEO Cheng Xinhua revealed the new brand name“Yishang” and planned to have 50 chain hotels by next year and seek IPO overseas in the next three years. Winter for the Budget Hotels China’s economy hotel surged rapidly in the past ten years. Investment flooded in and created a bunch of industry magnates such as Home Inn， Seven Days， Jinjiang Star， Hanting Hotel and Super 8. However， surge in the number of contenders makes the competition increasingly fierce and profit margin keep narrowing. A lot of hotels suffer loss and foresee a grim outlook. It is generally accepted that China’s budget hotel market started to thrive in the year of 2004 when there was still an abundant supply of hotel properties with excellent locations and affordable costs. Back then the lease term of a hotel was usually for ten years. As a consequence， most of these hotels are now up against the pressure of lease expiring and rent rising. According to data compiled by a third party institution， rent of China’s first and second-tier cities doubled in the past ten years， and average monthly salary of hotel employees has risen from 800 yuan to 2400 yuan. It is reported that in 2013 China’s 2361 four-star hotels with 462800 rooms suffered a loss of 3.29 billion yuan； 5631 three-star hotels with 620700 rooms also made a loss of 2.12 billion yuan； average return on rentable rooms of four-star