China's booming hotels

Starwood's April announcement that it had signed up a landmark 50th hotel in Greater China was one of many milestones reached this year by international hotel chains trying to ensure a share of the Chinese hotel market. This contract to manage the Four Points by Sheraton Shanghai, Daning means there are now nine Starwood-managed hotels in Shanghai. InterContinental Hotels Group (IHG) also reached a landmark this year when it signed a contract with Chengdu International Exhibition & Convention Group to manage six hotels and 4,500 rooms in Chengdu and Jiuzhaigou in China's Sichuan province. The Chengdu hotel deal was the largest ever for IHG in China, where it currently manages 52 hotels. IHG says that it is well on track to reach its goal of running 125 hotels in China by 2008. The world's largest hotel groups like Starwood and IHG are counting on China's economic growth to drive business travel and domestic tourism, and they look to predictions that China will be the world's largest inbound tourism nation by 2020. As the World Travel and Tourism Council President Jean-Claude Baumgarten said on a recent visit to Beijing, "It is clear that China's travel and tourism industry is moving at the speed of light." Growth strategies The predominant pattern for international hotel chains moving into China begins with signing management contracts for premier-brand hotels in gateway cities such as Shanghai, Beijing and Guangzhou. They then add additional business and budget brands to their portfolio within these cities. While establishing their position, they start looking for other properties in second-tier cities across the country. From the gateway cities, hotel chains move on to consider properties in industrial areas such as Chengdu, Chongqing and Tianjin, and tourist areas like Hangzhou and Hainan Island. Carlson Hotels is at the early stages of this classic approach to hotel expansion in China. With eight hotels in China at present, including its newly opened premier property the Regent Shanghai, Carlson will have its Radisson, Regent and Park Plaza hotels and resorts in Shanghai, Beijing, Ningbo, Hangzhou and Tianjin by the end of 2007. Paul Kirwin, president and managing director, Carlson Hotels Asia Pacific, said: "With the industry in such good shape, we see the next few years as a perfect opportunity to further strengthen our current portfolio across China, as well as the entire region. "While this is an exciting time of major growth for Carlson Hotels Asia Pacific, we remain very strategic about our expansion. Choosing the right brand for the right target market is incredibly important." Giant steps Accor was an early entrant into the China hotel market and has a more aggressive strategy. It is expanding its China portfolio rapidly with 34 hotels under its management in China and 30 hotels under development. However, Accor says its strategy is slightly different. "What makes Accor unique is that, unlike most international hotel groups, we don't just concentrate on the top end of the market," said Brian Deeson, senior vice-president Asia Pacific and CEO of Greater China. "Our development strategy covers the full market spectrum from five-star Sofitels to three-star Ibis hotels, with Novotel and Mercure covering the mid-market. "For Sofitel it is by management contracts focusing on the major commercial and gateway cities around the country, and in key leisure destinations like Xian and Hangzhou." Olympic deadlines While hotel groups are looking to all corners of China for strategic opportunities, with two of the world's biggest events being hosted in China within the next four years there are additional demands for rooms ahead. "Current estimates indicate a severe shortage to meet the expected demand during the Shanghai Expo in 2010 and Beijing Olympic Games in 2008, so these cities are obviously a priority at this stage," said Kirwin. In preparation for the Beijing Olympic Games, the Novotel Zhongguancun Beijing West opens this year and in early 2008 Accor will open a Novotel and Ibis complex close to the Olympic Village. Also opening in time for the 2008 Olympic Games is the Sofitel Wanda Beijing, a 453- room luxury hotel with 50 long-stay apartments that promises to be the flagship hotel for Sofitel brand in China. OPINION FUTURE PREDICTIONS Nigel Summers is a director at Horwath Asia Pacific, a firm of specialist hospitality consultants that also organises hotel investment conferences in China. He said current openings and new properties are a result of a second wave of hotel development in China that has been steadily increasing since 2001. He notes that there have been more "rational developments" of hotels in recent years as financial regulations have improved. "This is good because it is keeps the market healthy," said Summers. The first wave of international hotel groups signing up to manage hotels in China was in the early 90s when hotels were built by state-owned enterprises and provincial governments. Summers said this new wave is driven by private developers. These are often relatively young companies that have made money from residential developments and are now looking at hotels and larger developments. "You will see a lot more convention-hotel development with very large dedicated facilities like the Renaissance Tianjin Summers…Positive TEDA Hotel and Convention Centre," said Summers. The 466-room hotel, located in the city of Tianjin, has 6,200 sqm of meeting space and is managed by Marriott International, which opened its first hotel in China nine years ago. "Tianjin is a growing 'corporate' development area, supported by the proximity to Beijing," said Bernadette Dennis, vice-president, Asia Pacific Global Sales Organisation Marriott International. Dennis said Suzhou, northwest of Shanghai, is another area with growth potential for convention hotel business because it is so close to Shanghai. Marriott already has a Renaissance property in Suzhou, Sofitel Suzhou opens this summer and South Korea's leading hotel group The Shilla recently announced that it had signed a management contract to operate a new five-star hotel close to the Suzhou International Expo Convention Centre. The Shilla Suzhou will have 308 rooms, its own convention centre and nine function rooms. Further away from the gateway cities, tropical Hainan Island with beaches and resorts has been chosen by many international hotel brands looking for secondary locations once they have established themselves in gateway cities. "It's a popular meeting destination for Chinese companies," said Summers. "Supply has grown in recent years but so has demand. There are still a lot more projects planned, more boutique and more villa-type resorts."