Chinese investors shift focus to domestic hotel market

The Beijing Wanda Sofitel was recently rebranded as the Wanda Vista Beijing. Photo credit: Wanda Hotels & Resorts.

Chinese investors are eyeing local hotel investment opportunities to continue expanding the market while Beijing continues to restrict overseas investment, according to David Marriott from JLL's hotels and hospitality division in China. Opportunities for foreign investment in China's hotel market have decreased in response to the growing domestic interest. 

China's State Council and the National Development and Reform Commission restricted investment in certain industries, including real estate and hotels, last August. JLL data showed that China’s market had close to $4 billion in hotel sales last year with most of purchases made by Chinese companies with Beijing scoring the highest number of transactions last year. These included Guangzhou R&F Properties' acquisition of 77 hotels from Dalian Wanda Group in a $2.9-billion deal. 

Excess hotel supply is helping to boost liquidity, driving some developers to consider converting hotels into office or residential buildings to gain yield, Marriott said in a statement. The sale of mixed use developments that require a hotel on the property has also led to excess supply and decreased trading performance, particularly in Tier-2 and Tier-3 cities. 

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However, Marriott predicts this rising demand, which will be driven by a boost in the region's economic growth and the middle class, will absorb any surplus in this investment period. The China National Tourism Administration recorded 2.5 billion domestic trips in the first half of 2017, up 13.5 percent from the same period last year. Urban residents made 1.7 billion of these trips while rural residents made 0.8 billion of them. Domestic tourism revenue grew to $346 billion, up 15.8 percent from last year. Meanwhile, inbound tourist trips reached 69.5 million, up 2.4 percent from the same period last year. Marriott predicts investors will have opportunities in Tier-2 cities, such as in Hangzhou or Suzhou, “where pricing will be more competitive compared to Tier-1 cities.”

Domestic companies are also increasingly acquiring hotel management contracts from international brands. These include the Beijing Wanda Sofitel, which was rebranded as a Wanda Vista Hotel. “In recent years, we have seen a growing number of domestic operators with higher brand recognition and deeper local expertise,” Marriott said.

JLL forecasts China will have a significant number of hotel transactions due to a growing pipeline of new hotels, strong demand and infrastructure upgrades across the country. The firm expects RevPAR in key markets, such as Beijing and Shanghai, will rise between three and four percent in the next few years. “Driven by leisure and business travel and China’s increasing popularity as a MICE destination, the longer term prospects of China’s hospitality market is bright,” Marriott said.

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