There's been a ton of noise about Chinese investment overseas. But what about hotel investment within the country? The seventh edition of HVS' annual China Hotel Investment Watch seeks to explain it all.
According to the report, there has been "unprecedented" hotel development in recent years at an "extremely vigorous rate."
Coastal cities and key commercial centers saw the first supply surges, which consisted primarily of international hotel brands catering to inbound international travelers. Domestic brands reigned in other parts of the country, however, serving government travelers. Secondary and tertiary cities were caught up in the real estate boom and also witnessed a rapid increase in internationally branded hotels.
As noted previously, Chinese investors are looking to grow overseas and are finding new opportunities to diversify and attain more attractive yields, thanks to increased outbound travel from China and increased awareness of global brands. But the regulatory environments are usually in "stark contrast," the report says, to those found in domestic markets.
Last year, Shanghai’s total star-rated hotel room supply increased by approximately 1 percent, which was the first growth in the past three years. While the shares of five-star rooms exhibited a growth trend, the contribution of other star-rated segments stayed the same or decreased. For the rest of 2016, market sentiment in Shanghai’s hotel industry is expected to remain favorable. Shanghai’s hotel occupancies and average rates are likely to be driven by strong commercial and MICE demand. The Hongqiao CBD is steady, and the EXPO area and the Hongqiao National Exhibition and Convention Centre is continuing to develop. In addition, the opening of Shanghai Disneyland is likely to increase leisure visitor numbers to the city as a whole, and the Pudong New Area in particular.
Of the three profiled cities, Shanghai has the largest pipeline dominated by the upper-upscale and luxury segments. This year will bring a Sofitel, Bulgari, Radisson Blu, Meliá, along with the Chinese outpost of MGM's iconic Bellagio, two Hyatt Regency hotels and two InterContinental hotels. 2017 will bring a second Radisson Blu, a third Hyatt Rgeency, a JW Marriott, an Edition hotel, a St. Regis, a W, a Cordis and a Le Méridien. A second Le Méridien is in the works for 2019.
Chengdu had 113 star-rated hotels with an aggregate of 22,409 rooms last year, representing a 3-percent growth from 2014. The five-star segment had the lion's share of room supply at 7,733 rooms, and this number has been "gradually increasing." More than 10 upscale hotels with 4,155 rooms are expected to enter the market in the next two years, which will likely boost market competition. With the anticipated influx of new supply, Tianfu New District is set to emerge as a leading hotel submarket for the city.
Chengdu has a strong pipeline, with a good number of upper-upscale and luxury hotels coming on board in the coming years. This year alone will see a JW Marriott, Grand Hyatt, Conrad, Mandarin Oriental, Waldorf Astoria and Fairmont all open. In 2017, the city will get a Hotel Indigo, a Four Seasons, a W and a Radisson Blu. Further out, look for the pipeline to skew more upscale and midscale, with a Westin and an Aloft set to to open.
In 2015, Zhengzhou’s star-rated hotel room supply recorded a slight increase over 2014's numbers. From 2013 to 2015, the four-star segment exhibited the strongest growth. The city's overall market is expected to recover over the remainder of 2016 as new supply is gradually absorbed. Marketwide occupancy and average rate will likely increase slightly. Zhengdong New District and Zhengzhou Airport Economy Zone are set to emerge as a key submarket. But in the medium-term, the report notes, increases in supply are expected to "exert downward pressure" on the market.
Upcoming hotels in Zhengzhou include a Meliá hotel and a Grand Mercure later this year, a Hotel Indigo next year, a Fairmont and a Grand Hyatt in 2019 and a Westin in 2020. A Radisson Blu and a Gran Meliá are also in the pipeline with no set opening date.
Looking ahead, HVS expects that the future of hotel development in China will be characterized by more carefully planned and executed projects, based on a sound economic footing to ensure sustainable operations.
Increasingly, the report says, developers need to be aware of new and emerging business models that compete in the accommodation space from a diverse range of angles.