Summary of Key Points
While industries such as catering and clothing complain about difficult business conditions, the number of hotels continues to rise—by 2025, there will be 106,300 chain hotels with an additional 1.09 million rooms. However, this is not a surge in demand but rather a "paradoxical expansion": on one hand, room revenues per room are declining, and the industry as a whole is struggling for profits or even facing losses; on the other hand, chain brands are eagerly joining in, and commercial real estate owners are converting their properties into hotels to sustain their operations. The underlying issue is that idle assets are looking for a new use, chain brands are expanding at low costs, and the market structure is shifting towards mid-to-high-end options. Everyone is betting that they won't be the last one to exit this cycle.
1. More Hotels Are Opening, but Not All Are Surviving
The numerous hotels you see on the streets are actually a result of the replacement of old ones with new, higher-quality chain establishments. Data from 2025 shows that the number of luxury and mid-range hotel rooms increased by 14.96% and 10.91%, respectively, faster than the 9.35% increase in budget hotels. The proportion of mid-to-high-end hotels has risen from 29% to 38% compared to 2019. For example, on the same street, a small family-owned hotel may close, replaced by a chain brand like All Seasons or Vienna. Consumers prefer well-known brands, and without sufficient customers and proper management, small independent hotels are naturally phased out, allowing chain brands to fill the void.
2. Opening Hotels Even When They Don't Make Money? No Other Options for Commercial Real Estate Owners
Developers convert vacant office buildings and shops into hotels not because hotels are highly profitable, but as a way to maximize the use of their assets:
- Activating Idle Assets: In the past 20 years, too much commercial real estate has been built, with many offices and shops remaining unsold or unrented, resulting in losses. Converting them into hotels generates cash flow (room bookings are paid daily) and can increase the value of the assets, making it easier to obtain bank loans for other investments.
- Cash Flow Is More Important Than Profit: The total profit of 1,613 hotels in Beijing over half a year was only 59.8 million yuan, averaging just 37,000 yuan per hotel per half year—barely profitable. However, developers are more concerned with generating cash flow to keep their properties running than making substantial profits.
3. Chain Brands Are Reaping Benefits: A Golden Time for Low-Cost Expansion
For chain brands like All Seasons and Huazhu, this is a golden period for expansion:
- Acquiring Struggling Independent Hotels: Many independent hotels are struggling financially and are willing to sell or join chains at low prices, gaining access to the brand's reservation systems and management expertise.
- Lower Rent Costs: With many commercial properties vacant, rent rates have dropped, reducing the cost of opening new hotels.
- Easy Profits Through Fees: Chain brands don't need to invest in opening new hotels themselves; they earn profits by charging franchise fees and management fees. For example, Huazhu's revenue from franchises and management increased by 23.1% last year, with all the risks falling on the franchisees while the brand reaps the benefits.
4. Severe Imbalance Between Supply and Demand
The increase in the number of hotels is not due to a rise in demand but rather an oversupply:
In 2025, hotel supply grew by 3.2%, while demand only increased by 0.4%. This means that only a small portion of the new rooms (0.4%) are actually occupied, leading to higher vacancy rates and further declines in room revenues (for brands like Marriott and Huazhu, revenues per room decreased by 2%-5.7%). The market doesn't really need so many hotels; it's the real estate developers who want to convert their properties into hotels to sustain their business.
5. The True Nature of This Boom: A "Game of Who Will Be the Last One to Quit"
Behind the surge in hotel openings is a competition to be the last one to exit this cycle:
- Developers: Betting that converting properties into hotels will allow them to cash out and use the funds for other investments.
- Chain Brands: Hoping to gain a stronger market position by expanding their presence and collecting more fees.
- Franchisees: Believing they can attract customers with the brand's reputation and eventually recoup their investment.
However, given the severe imbalance between supply and demand, someone will inevitably lose in this game. The ultimate losers may be small business owners who pay high franchise fees but face high vacancy rates.
In essence, this is not a sign of a thriving hotel industry but rather a collective attempt by surplus commercial real estate to survive, driven by the inertia of capital expansion.
(The entire analysis is written in plain language without using technical jargon, hoping to help you understand this counterintuitive economic phenomenon.)