The 2008 Beijing Olympics, the 2010 shanghai Expo, and the Guangzhou Asian Games brought unprecedented opportunities for development to the Chinese hotel market: especially for four- and five-star rated hotels. International brands entered Chinese market one after another, and China's star-rated hotel market has experienced a period of rapid development. As the impact of financial crisis is fading away, China's first tier cities are now a relatively saturated market, while second and third tier cities are getting more and more four- and five-star hotels.
Hilton Worldwide Expands Quickly in China
It has been 22 years since Hilton Worldwide first entered the Chinese market in 1988 with Hilton Shanghai. However recently, Hilton Worldwide has experienced a period of slow development in China compared to other international brands such as IHG, Marriott International, Starwood, and Hyatt. Hilton announced in 2010 that it will strengthen its presence in China, by introducing the Waldorf Astoria and Conrad luxury hotel brands to China, and increasing the number of hotels under its management from 17 to 100. In 2011 alone Hilton Worldwide will open at least six new hotels in China.
Robert Allegrini, the vice president for corporate communications of the Americas and Luxury Brands division, explains the reason for its conservative growth wass not worries about the market, but the isolation of brands. In 1964 Hilton International was spun off as a separate corporation, owning the exclusive rights to use Hilton name outside the United States. This lead to the separation of Hilton Hotels Corporation based in the US and Hilton International headquartered in London. The two Hilton groups were reunited in February 2006 when the sale of Hilton International to HHC completed. In 2007, HHC agreed to an all-cash buyout from The Blackstone Group LP. Since then Blackstone has conducted a series of innovation. After three years the group, which was renamed Hilton Worldwide, started its first large-scale expansion in China; including the first phase of Waldorf Astoria Shanghai on the Bund, which opened in October 2010; and the Conrad Sanya Haitang Bay and Doubletree Resort by Hilton Sanya Haitang Bay, which opened on December 28, 2010. Over the next three years, Conrad hotels will successively open in Dalian, Beijing, Guangzhou, and Tianjin.
On October 23, 2010, Hilton Worldwide signed a cooperation agreement with Shimao Group, developing eight hotel programs in Tianjin, Wuhan, Nanjing, Xiamen, Shenyang, Qingdao, Yantai, and Wuxi. This is Hilton Worldwide's largest multiple hotel management project in China. Hilton Worldwide now has 54 properties under development in China — according to Lee Weehau, vice president of development, Greater China.
Kempinski Hotels Expects Steady Expansion in 2011
Compared with other international hotel groups, Kempinski Hotels is taking a steadier approach to developing in China. In China the group currently has Kempinski Hotel Beijing Lufthansa Center, Kempinski Hotel Shenyang, Kempinski Hotel Dalian, Kempinski Hotel Xi'an, Kempinski Hotel Yinchuan, Kempinski Hotel Chengdu, Kempinski Hotel Wuxi, Kempinski Hotel Suzhou, and Kempinski Hotel Shenzhen. New properties in Huizhou, Guiyang, Chongqing, Xiamen, Yixing, Qingdao, Haitang Bay Sanya, and Yalong Bay Sanya are now under development and hotels in Huizhou, Guiyang, Shanghai, and Xiamen are expected to open in 2011.
Michael Henssler is president China for Kempinski. He told China Hospitality News that Kempinski is an long-established European hotel brand and a dedicated hotelier, concentrating on the management of luxury hotels. This has restricted the development of Kempinski. Now it has adopted a nicely balanced portfolio to develop 30 hotels in China, and currently 12 new hotels are under development.
Henssler stresses, "We are going to continuously improve our product." All Kempinski hotels are unique. There are no two hotels that look alike. When guests go to a Kempinski hotel they can really tell which city they are in. He says a Kempinski should be exciting: not just "a home away from home."
According to Henssler China is a very important market as a domestic market; as an inbound market; and, in the future, as an outbound market. Ten years ago the clientele of Kempinski China hotels was about 95% overseas guests and 5% local guests. Today it is about 60% international guests and 40% domestic. In second tier cities it is 90% to 95% domestic market and 5% international market. The business is balancing out. The number of domestic guests in Beijing and Shanghai is increasing and the number of international guests in second tier cities is increasing. Over time Henssler expects to see a minimum 50/50 split in the big cities and a 30/70 split in the secondary cities.
One looks at a city not as it is today but as it will be in five or ten years of time, says Henssler when talking about the 12 hotels that are under development. Most of them are in second and third tier cities. Kempinski does not go into a market for a few years; it goes for the long term so one needs to look at the growth potential of each city. On an international scale second tier cities are very large with populations of 10 to 12 million people. And they are very important commercial metropoli. They have a great future, are very important for a global market, and are very important for outbound markets.
Accor Focuses on Medium- & High-end Hotels
As at January 2011, Accor was managing 105 hotels in 47 Chinese cities, including 21 luxury hotels, 17 high-end, 17 medium-end, and 50 budget hotels, altogether 27,058 rooms, accounting for 7% of all foreign brands' guestrooms in China. China Hospitality News recently interviewed Robert Murray, the senior vice president of Accor Greater China, who talked about Accor's performance in 2010 and its development plan for 2011.
Murray said their performance in 2010 was much better than in 2009. Expo brought opportunities to hotels in Shanghai, and also to Beijing as many companies had chosen Beijing to hold their meetings and conferences. Hong Kong, Beijing and Shanghai each represented 30% of their market shares.
Over the last three years, Accor had opened 43 hotels. The group expects to maintain the momentum of fast development in the next few years. In 2011, Accor will focus on the five-star Pullman brand, and some medium-end brands such Mercure, Grand Mercure, and Novotel. At the end of 2010 Accor opened Pullman Oceanview Sanya Bay Resort and Spa, and in 2011 there will be a Novotel hotel opening in Nanjing and a Mercure hotel opening in Jinan.
Chinese hotel owners usually will compare different international hotel brands when choosing a management team, which means Accor faces competition from other brands. Why would hotel owners choose Accor instead of others? Murray listed three advantages Accor has in China. First, Accor has been in the China hotel market for 25 years, and has gained brand awareness and rich experience in China. Second, Accor manages multiple brands in China, including luxury and budget hotels, which cover all market segments of the hotel industry, which means Accor can provide more cooperation plans for hotel owners. Third, Accor has strong awareness of the need for environmental protection, and pays much attention to training of all staff to meet the needs of multiple brands.
Murray agrees with second and third tier cities building urban complex projects including star-rated hotel, recreation facilities, shopping centers, and office buildings. He believes this is important for the development of hotels, as it can promote commerce near the hotel. When a hotel enters a new city, there should be something that can stimulate local consumption. The urban complex is just this. From the developer's point of view, if there are business facilities near a hotel, the investors will have more channels to gain profit.
In some of Accor hotels, MICE represents 30% of the hotel's total revenue. For the hotel industry as a whole this is normally between 10% and 20%. Accor has introduced the A|Club loyalty program to reward guests who have held activities in Accor hotels. In 2011, Murray predicts that business in Beijing and Hong Kong will maintain growth, while business in Shanghai will enter the stage of steady development as the Expo ends; and second and third tier city market will continue to develop.
New World Hospitality Outlines Expansion Plan in Mainland China
Hong Kong-based New World Hospitality has launched an aggressive program to establish itself as an influential player in China. All locations of New World hotels are carefully chosen, meeting the conditions to develop a five-star hotel. By 2015, the number of New World Hotels is targeted to more than double.
In 2011 the group will open New World Guiyang, a hotel especially for business and recreation Situated at the finance and commercial center in Jinyang New District, New World Guiyang will enjoy a green landscape and be adjacent to the city's exhibition center which will be opened in the same year. The 311 guest rooms and public spaces are in an oriental style. For food and beverage, there is a cafe, a Chinese restaurant, the lobby lounge, and a bar. For meeting and events, there are a total of over 2,000 square meters of space, including an 800-square meter ballroom, a business center, and the executive lounge. For recreation, there is a fitness center, swimming pool, and spa center.
Starwood Plans 86 New Hotels
Starwood Hotels & Resorts Worldwide, Inc. is lengthening its long established lead in China as one of the largest four- and five-star hotel operators in the region with 62 existing hotels and a pipeline of 86 new hotels. Through 2011, one in every three new Starwood hotels will open in China, including new brand flagships for eight of its nine brands.
China is now Starwood's second largest hotel market, behind only the United States. "China is one of the world's fastest growing domestic and outbound travel markets," says Frits van Paasschen, president and CEO of Starwood. "Demand continues to outpace supply in China, and there is still a long runway for growth especially when you consider that China has 171 cities with a population of more than one million: most of which do not yet have a major international branded hotel. It is not hard to imagine that we will ultimately have as many hotels in China as we do in the United States . That is more than 450."
Now eight out of nine Starwood brands fly flags in China: Sheraton Hotels & Resorts is the dominant upper upscale brand in China and leads Starwood's growth here, with 31 existing hotels and another 34 in the pipeline. Sheraton's heritage as the first international branded hotel in burgeoning urban locations continues today, as evidenced by new hotels planned in Jiangyin and Huzhou.
Benefiting from Sheraton's strong brand awareness, sister brand Four Points by Sheraton has 11 hotels and another 14 poised to open, primarily in growing second and third tier cities and tertiary markets.
The Westin brand boasts a pipeline of 13 new hotels set to join its existing portfolio of eight award-winning properties including the Westin Shanghai and the Westin Guangzhou.
Global powerhouse Le Meridien currently features hotels in Qingdao, Chongqing, Xiamen, Shanghai, Shimei Bay, Sheshan, and Hong Kong with three additional hotels in the pipeline.
St. Regis, Starwood's ultra-luxury brand, has fast become a favorite for visiting heads of state and celebrities and it has flagships in Beijing and Shanghai and is poised to more than triple its presence with seven more hotels in its China pipeline.
Also on the luxury front, China's legendary The Astor Hotel in Tianjin made its debut as the first of four hotels to open within Starwood's esteemed The Luxury Collection.
Design-led W Hotels made its debut in China with the W Hong Kong in 2008 and in 2011 it will open its doors in Taipei and Guangzhou, with another three hotels in its pipeline.
Starwood's new Aloft brand, which offers style, design and high tech touches at an affordable price, opened one of its first hotels worldwide in Beijing in 2008, and continues to make inroads in China with seven new hotels planned.
Marriott International to Double Hotels in China in Five Years
Marriott International has signed management agreements for seven additional hotels in China and aims to double its presence in the country in about five years. Marriott's largest market outside of North America is China where the company expects to have 60 hotels open across six brands by year-end 2010: including eight flying the company's Ritz-Carlton flag. Among properties opening in 2010 in China are Ritz-Carlton hotels in Hong Kong and Shanghai Pudong.
Out of the seven newly-signed hotels, Renaissance Sanya Resort & Spa and Courtyard by Marriott Kunshan will open in 2011.
The 507-room Renaissance Sanya Resort & Spa is owned by Sanya Zhonggang Fishery Co., Ltd. When opened, it will be Marriott's third property in the greater Sanya area. Located at the north end of Haitang Bay on a beautiful white sand beach, the sophisticated Renaissance Sanya Resort & Spa will be about a 40-minute drive from the airport. Eight restaurants and lounges will comprise the resort's food and beverage choices including a Chinese restaurant with 15 private dining rooms, a seafood restaurant offering indoor and outdoor seating, an inviting beach bar, an exciting lobby lounge and a vibrant sports bar. All of its oversized guest rooms will have balconies and will feature contemporary styling, the latest technological advances and baths with a separate tub and shower. Recreational amenities will revolve around a world-class Spa with six treatment rooms; a fitness center; three swimming pools including a signature pool, a lap pool, and a children's pool; a recreation pavilion; two flood-lit tennis courts; and a children's club. For social events and conferences, the resort will have 2,424 square meters of space, including a 1,430-square-meter grand ballroom divisible into six sections; a 450-square-meter junior ballroom divisible into two sections and four additional meeting rooms of varying configurations.
The 265-room Courtyard by Marriott Kunshan, owned by Kunchan Dongzhixin Real Estate Co., Ltd., will be Marriott's first hotel in Kunshan. The Courtyard by Marriott Kunshan will be located on the east edge of Kunshan's bustling commercial and political area, near the Kunshan Municipal Government building. It will be part of a mixed-use complex consisting of serviced apartments and retail space. The hotel will have a casual restaurant serving three meals daily and a lobby lounge and bar for dining and entertainment. Its recreational amenities will center around a health club. Business-oriented amenities will include a spacious executive lounge with a private meeting room and a full-service business center offering two individual meeting rooms. For conferences and social events, the hotel will have 549 square meters of function space consisting of five meeting rooms in varying configurations, including a 342-square-meter ballroom that will be divisible into two sections. Contemporary guest rooms will feature the latest technology; defined areas for rest, relaxation and work; Marriott's renowned bed and bath linens and amenities; and in-room coffee and tea service.
Tianlun International Hotels Pursues Quality Expansion
Shelly Cai, assistant to the president and general manager of marketing of Tianlun International, Hotels told China Hospitality News that the group is seeking steady and quality expansion in recent years. As China's tourism and hospitality industry is developing ever mor rapidly and competition is becoming fiercer, a hotel group will need to make a long-term plan based on quality and performance. Tianlun has been adhered to this rule all the time. It started to manage Beijing Bohao Radegast Hotel in 2008 and Radegast Lake View Hotel in 2009.
The group also sees opportunities in second and third tier cities. It opened Radegast Hotel Waihai in Dezhou in September 2010. Though there are opportunities in the domestic hotel market, there are risks as well. If a four-star hotel is the alternative in first tier cities, said Cai, then Tianlun hotels will be the best one in second and third tier cities. Regional differences are important to adjust the turnover. For example, revenue from guestrooms is higher than that of food and beverage in Beijing and Shanghai, and the opposite in second and third tier cities. Therefore the strategies should be different in these areas.
In 2011, Tianlun will open several four-star hotels, and Shengtai Mingren Radegast Hotel in Cangzhou Hebei will also open in 2011, offering regional vacation products to guests.
High-end Hotels Invests More In Second and Third Tier Cities
Charlene Cheng is the vice president – sales and marketing at Shangri-La Hotels and Resorts. She thinks there are still opportunities areas in addition major Chinese cities like Beijing and Shanghai to develop four and five-star hotels, and that is why some second and third tier cities with great potential are becoming a more and more important market for high-end hotels. Most hotels including five-star properties showed some price increases in 2010 as a result of the economic recovery and the Shanghai Expo. Meanwhile, China is now a popular destination for international business meetings, incentive travel, and large-scale conventions and exhibitions, which will drive the development of convention and exhibition industry and hospitality industry.
Shangri-La Hotels and Resorts now owns and manages two brands: Shangri-La and Traders. The 68 hotels have more than 30,000 rooms. Since its first mainland China hotel opened in Hangzhou in 1984, Shangri-La Hotels and Resorts has determined its strategy for development in China. Cheng says the group will implement a stable investment strategy to develop new properties in second and third tier cities to offer valuable service to guests. In 2011 the group will open three new hotels in mainland China, Kerry Hotel Pudong, Shanghai,:Shangri-La Hotel, Manzhouli; and Shangri-La Hotel, Chongqing. In addition is planning to open two hotels in Macau.
Scholar's View: China Hotel Market Sees Natural Growth in 2011
Dai Bin, the president of the China Tourism Academy, thinks tourism is now in the golden age of development. By the end of the twelfth five-year plan, there will be 3.3 billion domestic visits, and 100 million overnight inbound visits. Tourism has become a driving force for the hospitality industry. Many places are building four and five-star hotels.
Currently the tourism market mainly is mass tourism, which means that quantity is not high enough. In 2009 the average expenditure on tourism was only CNY535, and accommodation accounted for a little more than CNY100 in addition to transport, dining, and sightseeing. The industry should have a more reasonable industrial chain. Now there are 14,000 star-rated hotels in China, more than 500 of which are five-star, and there are 300,000 hotels and inns without a single star. This means there is a huge potential market. The impetus for the development of a hotel includes GDP and local economic growth, retails sales of commodities, passenger turnover, and the number of tourists. Given this background, many investors are coming from the angle of government image, li.e. "this place should have a five-star hotel." Private investors are investing in fixed assets as there are limited investment channels. A tourism complex is another choice, and enterprises can benefit from tax plans. So hotel development is unlikely to stop.
The whole market is not balanced, said Dai. Foreign investors are investing in budget hotels in China such as Hanting and 7 Days Inn because they have seen the potential of this medium and low-end market. Domestically, the average room price for four- and five-star hotels is improving slowly. However occupancy rate is slowly decreasing, which does not support the idea that there is much space for four and five-star hotels. Of course, some regions still have potential for investment; but the large-scale development of four- and five-star hotels nationwide is not a reasonable expectation.
Dai thinks there won't be rapid increase in room numbers in 2011. It will be a stable development, or say natural growth. In 2011 the impact of the financial crisis will be eliminated, and there will be natural growth in the hospitality industry. Four- and five-star hotel owners and managers see no opportunities for large-scale development. The demand for rooms will increase steadily, while the supply will increase unreasonably, so four- and five-star hotels will not have an outstanding market performance. However due to the appreciation of the Renminbi exchange rate and the depreciation of the U.S. Dollar rate, there will be capital appreciation if these star-rated hotels can reach valuation. However, there will not be a commensurate increase in management revenue.