InterContinental Hotels Group and rivals said expansion plans in China will continue even though severe acute respiratory syndrome killed 190 people in the country, scaring off tourists and leaving two out three hotel rooms empty.
Analysts say it may be some time before travelers return.
The virus has infected almost 4,000 people in China, forcing authorities to close schools, hospitals and the stock markets. The World Health Organization warned against travel to the country.
The Ritz-Carlton in Shanghai said it had 32 percent occupancy last month compared with the usual 82 percent for April.
Still, Intercontinental, Marriott International Inc, and Starwood Hotels & Resorts Worldwide Inc are expanding, betting China's 2001 entry into the WTO and the 2008 Olympic Games will boost arrivals.
"You have a complete drying up of foreigners going to China and travel within the country is coming to a standstill," said Pieter van Putten, CEO of Morley Fund Management Singapore Ltd, which holds the equivalent of US$3 billion in Asia. "Still, the underlying situation of China being a strong-growth economy isn't changing, people will go back at some point."
Since 1997, the number of five-star hotels in China has risen to 282 from 57, while four-star hotels have doubled to 386, said the China National Tourism Administration.
InterContinental, which has about 40 Holiday Inn, Crowne Plaza and InterContinental hotels in China and Hong Kong, said it's on track to double the number of properties there over the next three to four years.
Among them are 14 contracts where InterContinental, the world's No. 2 hotelier by rooms, would manage hotels under its three key brands, it said.
"Whether one's delayed by a month or two months because of the current issue, that could happen," A. Patrick Imbardelli, InterContinental's managing director for Asia Pacific based in Singapore, said in an interview. "But we believe we're still pretty strong and realistic."
Shangri-La, Asia's largest manager of luxury hotels, has 16 of its 38 properties in China, and has clinched six management contracts in China and is spending US$330 million through 2006 to build four hotels in Shanghai and other cities.
"In the next month, it's unlikely people are going to make significant investment decisions, but there's no reason why that will continue because of the enormous potential that still exists in that market," said Scott Hetherington, Asia Pacific managing director at Jones Lang LaSalle Hotels in Singapore. "Investors will continue to look very actively at China with the view that the problem can be solved."
Ascott Group Ltd, Asia's biggest serviced apartment operator which said it has the largest share of that market in China with six properties, may look for more opportunities in the country.
The company has said it may introduce a mid-market brand to add to its properties. A night's stay at its Shanghai apartment costs US$150.
"We're monitoring the situation for short-term impact but the long-term outlook for China and its appeal as a destination for investments are still there," Benett Theseira, chief corporate and investment officer at Singapore-based Ascott Group, said in an interview.
Investors say hotels can't write off the world's fifth-most popular tourist destination that the World Tourism Organization said is set to overtake Italy, the US, Spain and France as the world's top destination in 2020.