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Luxury Hotels Reach New Heights in China


A five-star spa comes to Tibet with the St. Regis Lhasa

A hotel glut in China's big cities is spurring luxury chains to explore some remote locations. In November, Lhasa, the capital of Tibet, got its first international luxury hotel with the opening of the 162-room St. Regis Lhasa Resort, featuring a five-star spa. In 2012, Shangri-La Asia will open a 350-room hotel in Lhasa, and InterContinental Hotels Group (IHG) plans to add a high-end, 2,000-room hotel in the city within three years.

Visitors to Shangri-La's Lhasa hotel will be able to experience Tibetan welcome rituals and the local hand-churned butter tea, which is believed to be beneficial at high altitudes and prevent chapped lips. The property will feature a full-service clinic to attend to guests who suffer from altitude sickness. Tibet is the highest region on Earth, with an average elevation of 16,000 feet; Lhasa is at 12,000 feet. "Luxury today is not about champagne and caviar but about experiencing something your neighbor hasn't," says Jonas Ogren, a Singapore-based director for STR Global, an industry research company. "It's about experiencing champagne and caviar at Everest Base Camp."

The surge of hotel development in China has led to an oversupply, particularly in cities, and it may take five years for demand to catch up, says Ogren. "There was something like 52 new hotels opening up for the Olympics in Beijing," says Dave Horton, global head of Hilton Hotels & Resorts. "They went from 100 percent occupancy during the Olympics to 20 to 30 percent occupancy now."

That's made Tibet and other regions far from Beijing and Shanghai increasingly attractive to expanding hoteliers. "While Tibet isn't necessarily the first location that comes to mind for a hotel, these companies usually already have properties in primary and secondary cities," Ogren says.

In Tibet, ruled as an autonomous region in the People's Republic of China, tourism has surged since the opening of the Qinghai-Tibet railway four years ago, largely driven by domestic demand. Tourism grew 147 percent in 2009, according to the Pacific Asia Travel Assn., and 5.39 million of the 5.56 million visitors to Tibet were domestic travelers. "There's a great deal of affluence in China," says Judy Reeves, a spokesman for ShangriLa Asia, based in Hong Kong. "The demand for luxury is insatiable." ShangriLa has 33 hotels in China and 15 more in the pipeline, in such remote regions as Diqing in Yunnan province in the country's south and Manzhouli in the Hulunbuir grasslands in northern China.

Starwood Hotels & Resorts Worldwide (HOT), which partnered with Lhasa Yungao International Hotel in developing the St. Regis in Lhasa, expects to add 86 hotels to the 62 it has in China, making the country its largest hotel market after the U.S. The hotelier, based in White Plains, N.Y., already has a 102-room Four Points by Sheraton in Lhasa. IHG, of Denham, England, operates 137 hotels in China and has 149 more planned, the company said in June.

The bottom line: With a glut of lodging in China's big cities, hotel developers are targeting resort areas and remote locations for new properties.

Brandt is a reporter for Bloomberg News.

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