Chains push midscale brand growth in China17 Feb, 2012 By: Andrew Sheivachman
With the Chinese economy showing signs of strength, Western hotel brands are looking to capitalize on the spending power of middle-class Chinese travelers with new brands and developments in second and third-tier cities.“Everyone talks about brands going into China and what the opportunities are, but if you look at the big picture, there’s a unique story behind it all,” said Bill Hanley, group president of the Lexington Collection for Vantage Hospitality. “Twenty years ago or less, this was a communist country with no major business. In a short period of time, it’s shifted into a major economic power. The Chinese government has been remarkably astute in its planning economic development.”
According to STR Global’s December 2011 live pipeline data, there are currently 606 projects under construction in China totaling 195,320 rooms.
While budget brands have been prevalent in China for decades, with impressive growth from Home Inns & Hotels Management and Jin Jiang Inns, Western brands are looking to tweak their traditional midscale products to accommodate the domestic Chinese traveler. InterContinental Hotels Group, for example, will unveil a completely new upscale brand later this year to appeal to the wealthier Chinese traveler.
A TALE OF TWO MARKETS
The rapid rise of secondary and tertiary cities to populations of more than ten million has created a rush to fulfill demand for a variety of hotel product. “China is in effect building cities,” Hanley said. “If you look at Shenzhen, it didn’t exist 20 years ago; now it’s among the top five cities in China in population. They have a remarkably vibrant young economy with a tremendous amount of middle class growth. This brings a phenomenal amount of buying power to people who didn’t have it five years ago. That’s really what’s behind the explosion of growth.”
Hanley contrasts the development of Chinese infrastructure to similar growth in India, which also boasts an enormous population, with a focus on how modernization leads to increased demand for hotel stays. “India has had a capitalistic society forever but has nowhere near the progress that China has,” Hanley said. “The infrastructure in China is phenomenal, with robust road systems, airports, heat and power service. These have been planned and implemented in probably 25 cities of well over one million people. The country is doing a very good job of trying to provide infrastructure to those cities and distribute various different types of industry so there is a tremendous demand for hotel rooms.”
Developing hotel projects, however, is only one part of a more comprehensive approach the Chinese government is taking to urbanization. “Most urban projects we see today—whether in primary or secondary cities—are mixed-use developments,” said Stephen Pan, chairman of Regent Hotels & Resorts. “This is driven in part by the urbanization trend and the government policy of promoting new areas in old towns to get a balance in real estate development. The government often asks developers to build commercial real estate in conjunction with residential real estate, while for the urbanization of cities, it’s often better to have retail, which generates tax revenue, and hotel product, which generates employment and urban development.”
Established Asian brands have had a major head start when compared to Western brands, especially when it comes to planning and executing large-scale developments around hotel products.
No matter the type of development project or brand, developers in China agree that getting local expertise is invaluable, especially since hotel demand is growing from regions as far north as Inner Mongolia. “You need to have solid partners in the country,” Hanley said. “There are now more private companies in China, but you need somebody locally who has ability to acquire the land and get the project developed. If I’m going into China right now, I’m negotiating with three different groups in developing the brands there.”
External Source : Hotel Management
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