SPECIAL REPORT : CHINA
Hyatt ’ s Andaz in Shanghai
Shanghai . That drove hotel development , peaking three years ago with more than 100 pipeline projects ; those hotels are now opening into a market with sub-50 % occupancy .
More prominent is the challenge caused by expansion in the tier-1 cities . After hotel development driven by major events — the 2008 Beijing Olympics , the 2010 Shanghai Expo and the 2010 Asian Games in Guangzhou — those markets are now forced to grow organically through business travel , leisure travel and the MICE segment . “ All three of those engines are fired up ,” Ng says . “ The question is , are they fired up enough to support the new supply that is coming into the market very quickly ?” On a long horizon , Ng and others say absolutely — but hoteliers in those cities likely face a difficult three to five years .
The math appears to back up the rosy long view : there are some 2.3 million guestrooms in China , compared with about 5 million in the United States and 6 million in Europe , according to IHG estimates . That translates to roughly 550 Chinese per hotel room , compared to 50 to 70 per person in America and
Europe . “ Most Chinese cities in the next 18 months are going to have an oversupply problem , but the infrastructure growth will smooth itself out over time ,” says James Kaplan , senior vice president of development in Asia Pacific for Fairmont Raffles Hotels International , Toronto .
China ’ s top-tier markets are more accurately called soft than saturated , says Andrew Clough , senior vice president of development in the Middle East and Asia Pacific for Hilton Worldwide , which has 28 hotels open in China and 90 under construction . While conceding that industry performance in Beijing and Shanghai in particular has been down , he notes that many observers were expecting those markets to fare even worse — a fact that makes him optimistic about future projects in second- and third-tier markets .
While regional competition from Hilton and other Western groups has intensified in recent years , Lo Young , Langham Hospitality Group ’ s regional vice president for China , believes enormous opportunity remains . Hong Kong-based Langham has seven hotels open in China and 13 more in the pipeline , including five set to launch in 2012 . “ With a significant percentage of properties without an international flag , there are opportunities for an owner-operator like Langham Hospitality Group to work with like-minded partners ,” Young says . “ If anything , the rush ( of Western brands ) highlights our differences .”
The next wave Prime development sites are limited in China ’ s top-tier cities — Beijing , Guangzhou and Shanghai — which should limit overdevelopment there , according to JLLH China . But in some second-tier markets , a crush of new openings looks to pressure performance of established city-center properties in the medium term .
Taking a long view , though , secondtier cities remain ripe for hotel expansion , development executives say , with state-planned “ new towns ” on the outskirts of these and other cities laying the foundation for demand . Relative latecomers like Fairmont Raffles , which debuted in China in 2007 and now has 15 properties open or under development , have something
www . hotelsmag . com January / February 2012 HOTELS 31