Hilton Worldwide Holdings and its franchise partners are capitalizing on China’s crumbling commercial real estate sector by converting vacant offices into hotels.
This move is part of a broader strategy to expand the hospitality company’s presence in China, where the domestic travel market is booming, despite a broader economic downturn, Bloomberg reported.
Hilton, which owns luxury brands such as Conrad, Waldorf Astoria and DoubleTree, recently celebrated the opening of its 700th property in Greater China. The company plans to add 100 more hotels in the region over the next few years, with nearly 900 locations already in the pipeline, said Clarence Tan, Hilton’s Senior Vice President of Asia Pacific Development.
About 25 of Hilton’s upcoming hotels in China will be developed via adaptive reuse of empty office buildings, a model that has gained traction. This approach has seen a marked increase, jumping from just 5 to 8 percent of project pre-pandemic to more than triple that figure now, Tan said.
“There’s an oversupply of office space in China and not a lot of demand for retail either, and that’s where there’s opportunity for hotels,” Tan said. Landlords, faced with plummeting rents and high vacancy rates, are increasingly turning to hotel operators like Hilton to repurpose their empty properties.
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In Shanghai, prime office rents have dropped to their lowest levels in over a decade, with vacancy rates nearing 15 percent as of June. However, this office space glut presents an advantage for hotel operators, who can secure favorable lease terms and quickly turn around hotel conversions. For instance, the Hilton Garden Inn Shanghai Lujiazui was converted from an office building to a hotel in just six months, opening in June 2023.
Despite the risks associated with China’s slow recovery in international travel, Hilton remains optimistic about the potential of the domestic market, driven by the country’s rising middle class and increased local travel.
—Rachel Stone