For the Brands, Asian Development is a
Once in a Lifetime Opportunity
Portsmouth, NH, U.S.A. – Lodging Econometrics (LE), the Global Authority for Hotel Real Estate, reported there are 962 hotels having 259,588 rooms in the Asia Pacific Pipeline at the end of 1Q ’07. Projects average 270 rooms in size.
Patrick Ford, President said, “Developers across the region are constructing new hotels at a torrid pace.” LE’s forecast for New Hotel Openings indicates that 209 hotels / 53,545 rooms will open in the last three quarters of ’07 to be followed by another 329 hotels / 84,544 rooms in ’08. A high 53% of all guestrooms currently in the Asia Pipeline will be open by year end 2008.
Ford said, “The Asian Pipeline has been in the making for a long time and is somewhat front end loaded as all Asia, and China in particular, readies for an enormous influx of tourists for the Olympic Games in Beijing in 2008, the World’s Fair in Shanghai in 2010 and the Asian Games in Guangzhou later in 2012.”
Ford continued, “Economies in the 24 countries throughout the region are participating in the global upswing and are generally very strong, particularly China and India which had estimated GDP growth rate of 10.4% and 9.2% respectively in ’06, two of the highest of all world economies. Development has been stimulated by a deluge of capital available for investment in all real estate sectors; the easy access to debt at historically attractive lending terms; high occupancies with surging room rates and RevPars; and guest room shortages in many markets. Although most economies are forecasted to moderate slightly in both ’07 and ’08 the declines are from such high economic levels that they are not likely to be of great significance as economies forge ahead.”
Development in China is Driving the Region
China has 496 projects having 170,417 rooms in the Pipeline. It represents 66% of all guestrooms in the regional Pipeline. It’s also the largest Pipeline in the world, second only to the U.S. LE forecasts that 96,839 rooms, or 70% of China’s Pipeline, will open by year end ’08. Some will be large iconic type hotels located in “new city areas.” Many will be located in world class mixed-use facilities designed by world famous “starchitects.”
Using the Olympic Games and World’s Fair as its platforms China will introduce itself to an influx of international tourists and to others around the world as a growing world power. It will be dazzling and truly impressive.
Three cities lead the way in China, Shanghai is China’s main international gateway city and is a booming logistics center and International port for the manufacturing centers in the Yangtze River Delta region. Shanghai is also a rejuvenated and booming financial center as it once was in the 1900’s, but is located this time in the new city of Pudong across the Huang Pu River from the historically famous Bund Financial District.
Shanghai has 57 projects in the Pipeline with 15,831 rooms. Shanghai’s schedule for New Openings will be proportionately spread over the next four years.
Beijing, the capital and host city for the Olympic Games, has 54 hotels / 17,634 rooms in the Pipeline. Most are on a fast track towards completion. 36 hotels / 11,303 rooms will open before year end ’08.
Macau, which already surpasses Las Vegas in monthly gaming revenues, has 33 actively pursued casino projects / 25,144 rooms in the Pipeline. Each casino hotel averages an incredible 760 rooms. Even though the Venetian will open this fall as the centerpiece project on the Cotai Strip, two thirds of all planned projects won’t come on line until ’09 and beyond.
India has the Second Largest Pipeline in Asia
India has 181 hotels / 31,319 rooms in the Pipeline averaging 173 rooms per project. There will be a flow of 4 and 5 Star projects in the major cities, but most of the future development opportunity is expected to be mid-market and economy construction located in the suburban “new cities” and office park developments that house so many of the call center and “back of the house” service operations that are driving India’s economy.
Bangalore with 27 hotels / 5,893 rooms has the largest concentration of development. Five other cities follow with between 13 and 19 projects each: Hyderabad, Chennai, Mumbai, Pune, and Gurgaon.
India is an important strategic target for international hotel companies who have a roster of mid-market brands and may not have been able to participate in the wave of high end development in other Asian countries. These companies are aggressively seeking development and financing partners who might help them accelerate their brand distribution. Many international companies headquartered in the region who have experience in these markets are creating new labels to take advantage of the opportunity they see in the mid-market and economy sector.
For the Brands, Asian Development is a Once in a Lifetime Opportunity.
China and India are the fastest growing economies in the world and are expected to stay that way for the foreseeable future. Many international companies have had large operating and development teams in the region for sometime. Uniformly all companies are accelerating their activity. Those with mid-market and economy brands see this as the opportune time to begin their brand distribution programs as emphasis mounts for servicing the growing and newly prosperous middle class population in both countries, many of whom are accessing travel for the first time.
InterContinental already has a roster of both upscale and mid-market brands under development and has the largest Pipeline at 73 hotels / 23,884 rooms. Starwood, whose portfolio of brands is mostly upscale and luxury follows with 60 hotels / 20,937 rooms. Marriott International is next with 40 hotels / 13,015 rooms.
Hilton, after its merger with Hilton International, is concentrating on Hilton Garden Inns, Doubletree, and Hampton by Hilton, and their luxury brands Conrad and Waldorf Astoria. Hilton has already established two significant joint ventures with development and financing specialists, that should result in a rapid expansion for their brands in both China and India. Hyatt, Four Seasons and Kempinski are single branded companies that have solid Pipelines, have been active for years, and have already developed some of the most significant iconic properties in the region.
Shangri-La from Hong Kong and Taj Hotels from Mumbai are the significant international companies based in Asia. The luxury Shangri-La brand and their 4 star Traders brand have 32 hotels / 13,104 rooms in the Pipeline. Taj has 36 hotels / 4,581 rooms in the Pipeline, 7 of which are for Ginger Hotels, their new economy brand.
For economy brands, Jin Jiang, with Starwood Capital holding a significant ownership stake, plans to have 200 new hotels around China by 2011 and aspires to open a total of 1,000 new hotels in the years ahead. ACCOR is hoping for 50 Hotel Ibis by 2011. Choice has just announced a joint venture where they hope to quickly deliver 12,000 new rooms spread across four of their mid-market brands.
For 4 and 5 star brands Starwood hopes to add another 40 hotels in China by 2010, many of them their new aloft brand. Raffles, with new investors Prince Al Waleed bin Talal and Colony Capital, hopes to accelerate their growth in the region. So too with InterContinental, who just reflagged 13 ANA hotels with its flagship brand.
When Will There be too Much New Construction?
It’s hard to say just when. Development is driven by the availability of capital, which is plentiful. Each economy is booming in its own right. Occupancy, ADR’s and RevPars are at or near historic levels and there’s significant guest room shortages in many markets.
In a time of unprecedented economic growth, trying to predict future demand growth is nearly impossible. Finding the correct balance with supply growth is an equally impossible task. Because the pace of development is so fast it’s likely that some poor decisions will be made.
The availability of capital and strong industry performance indicates that developers are going to continue to build. Franchise companies see this as a once in a lifetime opportunity and are highly motivated to expand the distribution of their brands. These are terrific times. For now, there’s no end in sight.
Assuming there is no unforeseen exogenous event that short circuits the present development cycle we can only know about demand/supply balances by looking backwards into the rear view mirror: in Beijing, probably by ’09; in Macau in 2010; Shanghai in 2011 and across India, probably in 2011 as well.
Lodging Econometrics (LE) of Portsmouth, NH is the global authority for hotel real estate. LE conducts Supply Side research for all markets, developers and brands and companies in: U.S.; Canada; Mexico, Central America and the Caribbean; Europe; Asia; Middle East; South America; and Africa. To learn more about LE’s products and services or to inquire about ordering a customized report, please contact LE at +1 (603) 431-8740 ext. 25, or visit them online at www.lodging-econometrics.com.