The Hotel Room Glut

Sandals Grande Antigua Resort and Spa

Image: Photograph courtesy of Sandals Resorts

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The Summer Olympics open in Beijing on the auspicious date of 8-8-08—which won't be particularly lucky for the city's hoteliers. There won't be nearly enough visiting heads on hotel beds during Beijing's big event.

Like so many Olympics before it, the 2008 Summer Games aren't turning out to be much of a tourist magnet for the host city. About 420,000 people visited Beijing last August; Chinese officials are expecting only about 10 percent more next month. But 13,000 new rooms have already been built in the Chinese capital, and the new inventory is expected to reach 30,000 by the end of the year. The glut is particularly noticeable in Beijing's luxury tier, where there are about 50 five-star properties, up from fewer than 20 five years ago. The result: Occupancy rates and room prices have been falling; Chinese tourism officials admitted earlier this month that almost half of the city's four-star inventory was still available for the Olympics period.

Beijing's Olympian oversupply is making headlines, but the same basic tale is being spun in many places around the globe. Especially in the United States and the Caribbean, there suddenly aren't enough travelers to fill existing properties. More hotels are opening as they emerge from the three- to five-year property-development pipeline. As airlines hack away at autumn flight schedules and raise fares, there's likely to be even fewer people traveling.

The U.S. hotel industry posted a record $139 billion in revenue last year and profits surged 5.3 percent to $28 billion. But the company that produced those rosy statistics, Smith Travel Research, says 2008 will be "tougher." Frits van Paasschen, chief executive of Starwood Hotels & Resorts Worldwide, whose brands include Sheraton, Westin, St. Regis, and W, is blunter. Domestic "lodging demand dropped significantly in May," he admitted last week.

The declines in some markets are startling. In Hawaii, hotel occupancy plummeted by more than 11 percent in early July. Almost half of the rooms on the Big Island were empty, and one in three rooms on Maui were dark. Things weren't any better in suburban Boston, where occupancy this year is running at about 63 percent. And PKF Hospitality, the much-consulted experts, suggests a direct relationship between declining airline capacity and hotel occupancy: For every one percent drop in the number of airline seats, hotels will see a 0.39 percent decline in demand. That would translate to a 3.9 percent fall in lodging demand as carriers trim 10 percent of their capacity this fall, PKF says.

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