Amid difficult times for China's hotel sector, many operators are launching new mid-range hotels to cater to more demanding customers. The mid-range sector is seen as a new growth area, but experts have warned of challenges in the market.

A hotel room in Hanzhong, Northwest China's Shaanxi Province Photo: CFP

Luo Ting, a salesperson at a Shanghai-based online advertising agency, is tired of staying in budget hotels when she goes on business trips.

"Budget hotels' bathrooms are usually small and the rooms aren't quiet. I have been woken up several times at midnight by people in the corridor," she told the Global Times Monday. "But three-star hotels usually have old facilities, and upscale hotels' rates exceed my company's budget."

However, Luo recently found a new option when she booked a room with JI Hotel, a mid-range hotel chain.

"The size of the room is similar to that of a budget hotel, but the facilities are better, such as free Wi-Fi, a comfortable bed and a shower. The rate is higher but still affordable," she said.

JI Hotel is a mid-range hotel brand owned by NASDAQ-listed China Lodging Group.

Hotel operators in China are currently eyeing the mid-range sector, as it is seen as one of the last unexplored fields in China's highly competitive hospitality market. Affordable upgrade

Homeinns Hotel Group, another domestic economy hotel chain, announced on April 8 that it has launched a new mid-range hotel brand, Homeinn Plus.

"The new hotel brand is an upgraded version of a budget hotel, and its market positioning is similar to that of JI Hotel," Sun Jian, CEO of Homeinns, told reporters in a group interview in Shanghai on April 8.

"We will also upgrade Yitel, the other mid-range hotel brand the group owns, to a mid- to high-end brand," he mentioned.

According to Sun, the investment cost for one newly built Homeinn Plus room is 85,000 to 90,000 yuan ($13,677-14,481), and that for Yitel is 120,000 to 125,000 yuan per room, almost double that for its economy hotel brands, for which the cost is 60,000 to 65,000 yuan per room.

The group aims to open 80 to 100 Homeinn Plus hotels in 2015, 30 to 40 percent of which will come from renovating its existing budget hotel properties, while the rest will be newly built.

"We will meet travelers' diversified needs by releasing more brands that target the mid-range hotel market in the future," Sun said.

New battlefield

Other major budget hotel chains have also stepped into the mid-range hotel sector.

China Lodging Group plans to build 680 to 730 hotels in 2015, and 20 percent of them will be mid- to high-end hotels, the company said in its latest financial report released on March 10.

Shanghai Jinjiang Metropolo Hotel Management, a hotel group that owns budget hotel chain Jinjiang Inn, plans to have opened 100 Metropolo Jinjiang Hotels, a mid-range hotel brand, by the end of this year, Shanghai Morning Post reported on March 18, citing the company's CEO Yu Meng.

"We are not late, as the mid-range hotel market in China is still at the primary stage, and the market will become mature in three to five years," Sun said.

Developing mid-range hotels will offer higher returns for budget hotel chains, many of which have witnessed falling revenue per available room (RevPAR) since 2011, Zhao Huanyan, chief consultant at Shanghai-based SAO Hotel Solution Consulting, told the Global Times Sunday.

According to Homeinns, its RevPAR decreased to 143 yuan in 2014 from 152 yuan in 2011.

The RevPAR of China Lodging Group also dropped to 159 yuan in 2014, compared with 165 yuan in 2011, it said in its financial report.

Sun said that the return on investment for its mid-range hotel brands will be higher than its budget hotel brands.

"For instance, the rate for one of our Homeinn budget hotels in Shanghai was 250 to 300 yuan per night, and after being upgraded into Homeinn Plus, the rate has been raised to 400 yuan per night," he said.

Foreign players

International hotel companies including InterContinental Hotels Group, Hilton Worldwide and Argyle Hotel Group have also started focusing on the mid-range hotel sector.

InterContinental aims to further develop its mid-range Holiday Inn Express brand this year in China, as the group believes the golden development period for mid-range hotels in the country will come soon.

"China's hotel market is transforming following recent government policies, and an increasing number of business travelers and tourists prefer accommodation that is neither luxury nor simple, fueling rising demand for mid-range hotels," InterContinental said in a statement sent to the Global Times Monday.

China's crackdown on corruption and lavish consumption by officials has affected business for high-end hotels. Duan Qiang, chairman of Beijing Tourism Group, said in March that 60 five-star hotels in Beijing incurred losses in 2014, mainly due to the campaign against waste of public funds.

In October 2014, Hilton Worldwide announced a partnership with Plateno Hotels Group, a hospitality group in China, to launch a mid-priced hotel brand called Hampton by Hilton in China, with the first hotel expected to open by the end of 2015.

"Although some foreign hotel operators have entered the mid-range market earlier than their homegrown counterparts, their expansion pace is not as fast as that of domestic rivals," Zhao of SAO Hotel Solution Consulting said.

Not so fast

Experts have warned against excessive optimism in the mid-range hotel sector.

"The market prospects for mid-range hotels are not as bright as some hotel operators have claimed," Zhao said. "Some hotel companies have released a batch of mid-range hotel brands, but their purpose is to earn franchise fees rather than build the hotels themselves."

Mid-range hotels, which charge between 300 yuan and 600 yuan per night, also face competition from high-end hotels.

"Some high-end hotels, especially four-star hotels, have lowered their room rates, as they need to attract customers amid the slowdown in the hospitality market," Zhao said. This poses a challenge for mid-range hotels, he noted.

Also, the mid-range hotel market is still small compared to the budget hotel market.

Homeinns plans to have around 160 mid-range Homeinn Plus and Yitel hotels by the end of 2015, which is still a small number compared to its 3,000 budget hotels across the country, according to Sun.

"But I believe there will be a significant rise in the number of mid-range business hotels in the next three to five years," Sun said.