Budget hotels set foot in the lucrative shared office sector

China's budget hotel chains, faced with competition and expanding at a slower pace than their more expensive cousins, are introducing shared office spaces as a new way to earn revenue.

Budget hotels not only face challenges from mid-end and high-end hotels, but also from bed-and-breakfast lodgings and short-term rentals, which boast advantages in prices and tend to offer a unique ambiance.

By Jan 1 this year, China had 2,342 mid-end hotels, jumping nearly 34 percent year-on-year. In the same period, the number of budget hotels reached 21,808, up 10.5 percent from the previous year, according to the findings of China Hospitality Association.

Since the beginning of last year, some budget hotel groups have used their brands and management experience to make money by offering shared office space.

Homeinns Hotels (Group) Co Ltd, a leading budget hotel chain, is about to provide shared office spaces in its hotels soon. The first group of such office spaces will be launched in a hotel in Shanghai and another lodging in Beijing. Both will offer products such as working desks and meeting room rentals by the hour.

In mid-October, Homeinns, under the control of Beijing Tourism Group, and shared office space provider UrWork, announced that the two sides will cooperate to establish the largest shared office network within a single market globally. They will together launch some 3,400 shared offices in more than 380 cities nationwide.

Zhao Huanyan, a hospitality industry analyst, said that shared office spaces can help budget hotels drive the spending of their catering and conference businesses. But he noted that hotels will also need to deal with some potential problems such as the complexity of office guests and the change of environments.

Last year, Jin Jiang International Hotel Group Co invested in WeWork, a US player that offers co-work spaces.

Huazhu Hotels Group, which owns and operates more than 3,000 lodgings across China, including Hanting Hotel, has invested in shared office providers SimplyWork and Fountown, and it has participated in establishing co-working service provider Distrii and two others.

Yang Xiaoming, co-founder of online travel information website Pinchain, said in the past decade, the costs of property and labor in China have jumped significantly, but the prices of lodgings in most budget hotels remain the same. In addition, some high-end hotels have lowered their prices, and this has further compressed the profit space of budget hotels.

Zhu Yue, executive director of China Insights Consultancy, said the hotel industry faces some bottlenecks of development, such as a decline in the average revenue produced by rooms.

"The business model that integrates shared offices and hotels can help to attract more potential guests, but such models are mostly operating in the more developed eastern China area, and it's very hard to benefit the hotels of inland China."