How Chinese hotel development is shaping up for 2016

Earlier this month, Fitch Ratings said it expected Chinese hotel development to grow in the coming months thanks to demand that is still well outpacing supply growth, improved infrastructure and the low value of the renminbi.

Consider Hong Kong-based private real estate investment firm Gaw Capital Partners, which is planning to focus a new Asia real estate fund on a range of properties in greater China—including hotels.

Other international companies are following suit as part of what the South China Morning Post calls "a brand-building gamble." Meliá Hotels International Group, for example, entered China last year with Meliá Xian and Meliá Jinan, and plans to open the Meliá Shanghai by 2016.

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María Zarraluqui, global development managing director for Meliá Hotels International, told the paper that the expansion served a dual purpose for both capturing domestic Chinese travelers and building brand awareness for international travelers from China, particularly those going to South America, where the company has a strong presence.

“At the present moment we have eight hotels signed [in China],” Zarraluqui said, and suggested that the company may eventually have as many as 20 properties operating throughout the country. 

The Sofitel Shanghai Hyland

That number would pale in comparison to other brands that are also seeking growth in China. Hilton is reportedly planning to open 180 hotels in the country. Andrew Clough, SVP development for the Middle East & Asia Pacific at Hilton Worldwide, said the growing middle-income class in China is has attracted attention from the company, which is eyeing mid-scale hotel developments.

Beyond the Big Cities
AccorHotels, the new owners of FRHI Holdings, is also aiming to open twelve to fourteen hotels in China over the next two years, according to the Shanghai Daily. As Michel Molliet, SVP of luxury and upscale for Greater China at AccorHotels told the Shanghai Daily, the company is gaining in the mid-scale segment. "We are still planning to open about 50 hotels in the next three years, or around 15 hotels per year," he told the paper. "Of that, six will be luxury/upscale hotels and the remaining nine will be in the mid-scale and economy segments."

AccorHotels will also start to shift its development focus from tier-1 cities and some tier-2 cities that are already "saturated" with luxury properties. Third- and fourth-tier cities, in that case, may offer the best opportunities. Like the other brands, the domestic market will likely be the one to catch, and Molliet noted its strength beyond Shanghai and Beijing—"but also in many tier-2 and tier-3 cities. That segment is really helping drive our business growth in the next three years." AccorHotels has also identified 65 cities where it wants to increase its luxury and upscale presence. "We are already present in 65 cities, but in many of them, we are present only with economy and mid-scale hotels," Molliet said. "So we are constantly looking at how cities are developing in China." 

Onyx Hospitality Group announced last week that it had partnered with two local investment companies to open two new hotels in China over the next two years. The company is reportedly looking to expand in Xiamen and Shenzhen, and reportedly has several projects in the negotiation stage.

Resort brands are also looking to undeveloped areas for investment. Banyan Tree, Pullman and Anantara have all opened properties in the rural Yunnan Province. Intercontinental has recently moved into the region.

But this is not to say that developers are avoiding the larger cities entirely. Just last week, AccorHotels signed three new Beijing properties in partnership with local real-estate developer Luneng Group. The three projects, two of which are new-build hotels, are scheduled to open in 2017 and 2018 and will add a total of 525 guestrooms to the company’s portfolio in Greater China.

Starwood Hotels and Resorts Worldwide, meanwhile, has about 130 hotels in its pipeline for China, while InterContinental Hotels Group plans to open 186 hotels over the next five years in some key markets throughout the country.

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