Shanghai luxury hotel market heats up

The world's leading luxury hotels are rushing to expand in Shanghai ahead of next year's World Expo, with hopes high for the upscale travel sector in the Chinese financial hub despite the global downturn.

The opulent Peninsula, the only new building on the main part of Shanghai's historic Bund in 60 years, just opened, embracing the city's Jazz Age heyday with a chauffeur-driven 1934 Rolls Royce Phantom and a Great Gatsby-esque pool.

The Peninsula's owner, Hongkong and Shanghai Hotels Limited, is making a return to the "Paris of the East" where it was founded after a 60-year absence, but it is facing stiff competition.

Ritz Carlton is building a second hotel here, Hyatt already has three landmark properties and Shangri-La is expanding from one to four hotels.

Conrad, Jumeirah, Waldorf Astoria and the legendary Peace Hotel -- managed by Fairmont -- are all also preparing to enter the fray, with work done or nearly completed on each property.

"Is it madness?" asked Graham Kiy, general manager of the two-hotel Zendai complex designed by star Japanese architect Arata Isozaki.

A member of the Leading Hotels of the World, the complex is due to open in September 2010.

"The luxury travel sector itself has always been less affected by economic downturns. Luxury travel is a little bit down, but not as depressed as the three-star and four-star sectors," Kiy said.

He said occupancy at five star hotels was currently at 50-55 percent overall, rising to 60-65 percent at hotels with better locations.

The surge in luxury hotel openings -- which will add nearly 3,900 five-star rooms -- is linked to Expo 2010, which Shanghai will host next year. Seven million visitors, most of them Chinese, are expected to flood into the city.

"We're sure Expo will bring benefits to Shanghai in terms of visitors and media attention, but 2011 will be tough because there will be an oversupply of luxury hotels," Kiy said.

China has weathered the economic crisis better than any other travel market, said Philip Ho, Asia Pacific vice president for Leading Hotels of the World, whose latest property, the PuLi Hotel and Spa, just opened in Shanghai.

He points to research his company conducted earlier this year indicating that while globally more than 40 percent of people had cancelled vacations due to economic constraints, only 15 percent had done so in China and Hong Kong.

Fifty percent of Chinese and Hong Kong respondents to the luxury firm's survey said they would not change their travel habits due to the downturn and nearly 80 percent said they would not downgrade from five-star hotels.

"While the world has gone into a recession, China has not gone into a recession," Ho said.

The number of high net worth individuals in China surpassed the number in Britain last year to become the fourth largest in the world, according to research published by Merrill Lynch this month. China passed France in 2007.

China now has more than 364,000 people with more than one million dollars in liquid assets, the investment bank said.

That is a key figure for the luxury hotel sector, executives say -- and one that puts them at ease.

"China's a very big market and there's a place for everybody and everything," said the Peninsula's general manager Paul Tchen.

"With our arrival, we're providing another option ... Choice itself is a luxury."