The launch of the China (Shanghai) Pilot Free Trade Zone is predicted to boost demand for luxury and business hotels in a city that is battling a slump in tourism.

"While the overall supply of hotel rooms in Shanghai is growing at a faster pace than there is demand, the hospitality industry around the free trade zone may experience a boom," says Zhu Chaolun, vice-president of property consultancy Jones Lang LaSalle's Hotels and Hospitality Group.

"Hotels that have already started operation in the region are performing well and are holding a positive outlook," Zhu says.

According to the Sheraton Shanghai Waigaoqiao Hotel, business travelers also have provided a boost.

"As corporate and financial markets are increasing, enhancement of our growth is evident. The Meeting, Incentive, Conference and Events (MICE) department has received many inquiries about hosting events in the FTZ," says Jessie Wang, marketing and communication manager for the hotel.

The establishment of the free trade zone will benefit high-end hotels as investors are drawn to Shanghai, which is fast becoming an international financial center, according to a recent note from CBRE Shanghai, a real-estate property consultancy.

Since July, when the proposal to create the zone was announced, property prices in the surrounding area have jumped some 20 percent year-on-year, while elsewhere in the city, the average gain has been only about 10 percent, according to Shanghai-based Anyi Real Estate Agency Co Ltd.

For Shanghai's overall hotel sector, MICE events are frequently tied to hotel bookings. Large conferences generally lift occupancy levels, and delegates tend to be less price-sensitive than leisure travelers, said the China Hotel Market Outlook released by Jones Lang LaSalle in Shanghai on Oct 23.

Product breakthrough is becoming increasingly significant for the bottom line, Zhu says. "With higher customer expectations, along with price sensitivity, many hotel management companies have launched new products."

Zhu says the pressure felt by hotels stems from a variety of factors, including economic uncertainty and companies' cutting their budgets for business trips.

Andy Flaig, managing director of Jones Lang LaSalle's Hotels and Hospitality Group, says it is vital for hotel managers to control costs and maximize cash flow and asset value.

Xu Junqian in Shanghai

contributed to this story.

wuyiyao@chinadaily.com.cn

(China Daily Africa Weekly 10/25/2013 page20)