Staring down the pipeline: How Asia construction is faring

Last week we reported that development in the Asia Pacific region could be stalling. Lodging Econometrics’ recently released "Asia Pacific Construction Pipeline Trend Report," which excludes China, found the region has 1,539 projects with 308,792 rooms in the works—a decline of 6 percent by projects and 4 percent by rooms year-over-year. The region’s pipeline is down 4 percent for projects and 3 percent by rooms year-over year, and the number of hotels scheduled to start constructions over the next 12 months is also down 4 percent (11 percent by rooms).

Top Markets in Asia

So who's building and where? The leading franchise companies in Asia’s hotel construction pipeline (beyond China) are InterContinental Hotels Group with 26,211 rooms and 116 hotels, Marriott International with 25,912 rooms and 110 hotels and Starwood Hotels & Resorts Worldwide with 25,632 rooms and 115 hotels. The top brand for each of the top three franchise companies in Asia’s pipeline is IHG’s Holiday Inn with 10,372 rooms and 42 hotels, Marriott's Marriott Hotel brand with 7,167 rooms and 25 hotels and Starwood’s Sheraton brand with 6,444 rooms and 27 hotels.

The top three cities in Asia with the largest hotel construction pipelines by rooms (again, beyond China) are Seoul with 26,008 rooms in 124 projects, Jakarta with 21,390 rooms in 122 projects and Tokyo with 12,029 rooms in 54 projects.

Ups and Downs in China

What about China? For that country, Lodging Econometrics released a separate study, and according to the China Construction Pipeline Trend Report, China’s total pipeline has 2,323 hotels with 527,933 rooms—down 10 percent by projects and 2 percent by rooms year-over-year. For properties currently under construction, China’s pipeline has 1,685 hotels with 358,005 rooms, down 19 percent by projects and 9 percent by rooms year-over-year. 

It’s not all bad news, though. The country has 283 hotels with 72,222 rooms scheduled to start construction in the next 12 months—up 24 percent by hotels and 17 percent by rooms. Hotels in the early planning stage—355 projects with 97,706 rooms—are up 22 percent by projects and 18 percent by rooms.

The three Chinese cities with the largest pipelines are Shanghai with 113 hotels (23,340 rooms), Chengdu with 81 hotels (22,160 rooms) and Guangzhou with 95 hotels (16,740 rooms).
As with the rest of the region, the top franchise company in China’s pipeline is InterContinental Hotels Group  (219 projects and 61,355 rooms), followed by Hilton Worldwide at 214 hotels and 60,460 rooms and Marriott at 128 hotels and 37,985 rooms. The leading brand for each of China’s top three franchise companies is IHG’s Holiday Inn Express with 66 hotels (14,891 rooms) Hilton's Hilton Hotels & Resorts with 67 hotels (23,565 rooms) and Marriott 's Marriott Hotels with 48 projects (15,496 rooms).

Those numbers could change within the next month, however. China has been dragging its feet on the approvals process for the Marriott/Starwood merger, and sought an extra 60 days to review the proposal early last month. Once that deal goes through, Marriott’s Chinese pipeline could get a significant boost. In fact, it’s already growing: Earlier this week, Marriott signed franchise contracts for five new Fairfield by Marriott hotels along with management contracts for a Courtyard hotel and a Marriott property in China. These seven new agreements will add over 1,400 new rooms owned by Marriott’s Chinese partners.

China in the Spotlight

China's economy has been in a state of flux for a while. Last month, a report in the Wall Street Journal found that real-estate developers are paying down debt rather than starting new projects.

“China’s growth since 2009 has been fueled by a debt blowout, and some businesses are failing to make enough profit to repay their loans,” the Journal wrote. In July, Yu Xuejun, chairman of the supervisory board for major state-owned financial institutions under the China Banking Regulatory Commission, said that banks face “the worst bad-loan pressure since 2004, when the government recapitalized the system. Bond defaults in the first half of the year were nearly double all of 2015.”

In the face of a shaky domestic economy, hospitality investors have also been seeking international options. A full 33 percent of China’s $27 billion in outbound capital went to hotels in the first half of 2016, coming in second to office deals, according to a recent study by CBRE.