International properties in China drop as domestics gain

After years of rapidly ramping up their presence in the Chinese market, international hotel brands may be now slowing down their expansion, with some even reducing their footprints or at least their direct exposure. Their losses have been matched by gains among domestic real estate developers moving into the space.

According to data from the China Tourist Hotel Association, the number of China-based hotel properties owned by the InterContinental Hotels Group dropped from 360 in 2013 to 239 in 2014. 

IHG said in its annual report for 2014 that the group has 241 properties in Greater China and that revenues from owned or leased properties dropped 1.4 percent from a year earlier in 2014 to $139 million. 

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Chinese analysts say international hotel management groups have been finding it difficult to adapt their operations to the complex and dynamic Chinese market, especially during this current stage that has been driven by the rise of e-commerce.

Meanwhile, China’s largest property companies, such as Wanda and Greenland, have expanded into the realm of owning and even operating their own hotels, a trend that looks likely to hold steady for the short term. They are sometimes working with interntional groups but, increasingly, launching their own brands.

Property developer Star River Group’s subsidiary Chateau Star River Hotels & Resorts recently announced plans to aggressively expand its business and market share in China’s hotel sector. At present, the company owns and operates six hotels in the top-tier markets of Beijing, Shanghai and Guangzhou as well as the provincial capital Taiyuan.

Not only owning but also managing hotels is a natural next step for China’s largest property developers. In addition to being well suited to the large upfront investment and slower returns of hotels, Chinese property developers have found that including a hotel in a large-scale property development proposal increases the likelihood of receiving approval from the government.

Wanda already owns 19 hotels across China operating under InterContinental, Sofitel, Hyatt, Sheraton, Meridien, Conrad, Westin and other brands, but it is in the process of shifting toward operating its own hotel properties. The company currently owns and operates three Wanda-branded hotels, in the cities of Taiyuan, Ningde and Wuhan. In the coming months, those three properties will be joined by 10 new hotels in provincial capitals including Changsha, Harbin, Lanzhou and Nanjing.

Like Wanda, Chinese developers such as Greenland, Shimao Property, R&F Properties and Greentown China Holdings have all entered the hotel industry via marriages of convenience with InterContinental, Accor, Starwood and other international hotel groups.

Chateau Star River’s foray into the hotel industry has been working out well lately. In 2014 the company reported turnover of 360 million yuan ($55.7 million) and recently said that in the first 10 months of this year, business was up 10 percent year on year.

Now that hotel brands owned by property developers have been accepted by the Chinese market, the big question is how much further they can go from here. An answer may lie just off the mainland.

Chinese property companies that are thinking long term and envisioning growing their hotel businesses into globally known brands can look south to Hong Kong for inspiration. Both the Langham and Mandarin Oriental brands grew out of local property companies moving into the hotel space.