The reality of development in China today

Regional PRofile: China

The march into China’s secondary cities continues, as evidenced by the October 2014 launch of the 360room Wyndham Chongqing Yuelai.

China:

Then now

it’s going to take a lot moRe homewoRk — and legwork — for established global players and upcoming regional and local groups to mine the sprawling opportunities of today’s China.

by Oriana LErnEr, COnTribuTing EdiTOr

C

hina’s transition from the golden child of hotel development to a promising adolescent with some growing pains can be summed up simply. “There’s no more ROE — return on ego,” says Howard Ho, director of development for Shangri-La Hotels and Resorts’ Hotel Jen. “Owners are taking a much closer look at the profitability of hotels.”

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HOTELS May 2015 www.hotelsmag.com

The maturation of hotels from status symbols to profit centers is one of the key factors reshaping the development landscape in the world’s most populous nation. Even with access to China’s massive domestic and inbound travel markets, hotel companies can’t rely on numbers alone to make projects pencil out. “The hotel investment market is mainly driven by the

real estate market,” says Daniel Voellm, managing partner, HVS Asia Pacific. “For the time being it will likely remain slower than in previous years. Once the new supply is absorbed and market fundamentals improve, more ‘technical’ opportunities will surface.”

That hasn’t taken China off hoteliers’ wish list for international expansion, but it has rewritten the rules. “More diversified, marketdriven and personalized products will become popular,” says Julie Dai, director, Horwath HTL. Trending projects Expect luxury to stay on the radar,

Regional PRofile: China

but extravagance is off the table.

“Instead of multiple dining venues and giant ballrooms, it’s one dining venue and a more modest ballroom, for example,” Ho says.

There is pent-up demand in the mid-tier and focused-service sectors. According to Lodging Econometrics, the economy sector dominates the Asia Pacific pipeline as domestic tourism continues to grow and international business travelers court businesses in new economic stimulus zones.

For some giant international flags, that means turning a boutique offer into one of the primary development drivers for the region.

Wyndham Hotel Group just announced it is adding Tryp by Wyndham to the five brands that already have a presence in China.

According to Ho, any new offer will have to be tailor-made for this increasingly sophisticated market.

“The rise of the lifestyle sector in major markets means a lot more than just a personalized stay,” he says. “It’s opening up a new business model.”

The plus for lifestyle lies in the flexibility of the concept. For the first time, some insiders see the conversion market heating up. That could open up opportunities for regional players to get a solid foothold in this market, or for brands like Hotel Jen to strategically reflag sister-branded hotels. (Hotel Jen Shenyang was formerly a Traders Hotel, and half of the brand’s total pipeline are conversions.)

Reflagging opportunities also make for exciting fodder for international brands looking to compete with local powerhouses like 7

Days Inn. “A lot of deals that were done with local economy brands 10 to 15 years ago have come to term,” says Bob Loewen, executive vice president and chief operating officer, Wyndham Hotel Group.

“Owners are looking to rebrand, and we plan to capitalize on that.”

Both local and international brands are eyeing the resort market. An increasingly affluent domestic travel market is drawing the heat into more diversified markets and products. Resort products catering to leisure FITs and families are becoming popular and range from luxury resorts, family resorts, camping sites and B&Bs to more interesting container and tented accommodations, according to Dai. “We think there are great development opportunities for these types of resort products in suburban areas and the traditional or emerging tourism destinations with improved accessibility,” she says.

China’s pipeline

China has the second-largest country pipeline with

2,715

pROjEcTS, and remains number one by rooms with 570,805 and accounts for 65% of Asia Pacific pipeline projects (nine out of 10 of the top markets in Asia Pacific are in China).

The top five China markets by projects are: Shanghai

116 111 97 91 87

guangzhou

Chengdu

Redrawing the map That same out-of-the-box thinking applies to finding the next hot spots. “Development is moving inland, and we see more opportunities in tier-three and -four cities,” Loewen says.

“There are markets like Wuhan that are currently struggling but will be hot in a few years, so we’re looking at a conversion there,” Ho says.

Kenneth Macpherson, chief executive, Greater China, IHG, is focused on Yunnan and Sichuan Province.

However, it is not just the “what” and the “where” of the Chinese market that are experiencing a

Beijing

hong Kong

Guangzhou is forecast to oPen 69 hoTels accounting for 7,721 rooms in 2015 — the most by both rooms and projects in any market in the world based on current projections.

Source: Lodging Econometrics

rapid shift. It’s also the “how.”

Increasingly operations-savvy owners are demanding a lot more from hotel operators. That’s not necessarily key money from major international chains (though regional players like Rosewood Hotel Group say strategic investment is important) but overdelivery on everything from design concepts to products and operating models, as Voellm points out.

They also want control. Some insiders point to franchising as the future of development, at least for major international chains.

“I actually could see the balance tipping toward franchising five years from now,” says Andreas Flaig, executive vice president of development, Asia Pacific, Carlson Rezidor Hotel Group.

Whatever terms owners want, they’ll find many contenders interested in working with them. The list of operators seeking to get or grow their Chinese presence continues to expand. “Regional players such as Rosewood Hotel Group are becoming more active and confident in making deals,” Dai says. “Plus, special attention should be paid to domestic players such as Wanda, BTG Hotels, HK CTS, New Century, Huazhu, Plateno, et cetera. These groups have strengthened their IT systems, loyalty programs and more.”

If there’s one takeaway everyone can agree on, it’s that opportunities in China are far from being fully exploited. “The infrastructure investment continues, and that’s going to continue to have a positive effect on our industry,” Flaig says.

www.hotelsmag.com May 2015 HOTELS

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