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Savills World Research

Briefing Hotel sector May 2016

Image: Hengqin Bay Hotel SUMMARY Occupancy rates continue to rise in the leading cities as increasing leisure tourism supplements steady demand from business travellers.

 China’s­ hotel market in 2015  The emergence of theme parks remained stable on the whole, and tourist attractions is expected to according to government data. First- result in an increasing rise in Chinese “Theme park development in tier cities recorded an improvement domestic leisure tourism, helping to China, with the active support in occupancy rates in the three-, four- buoy associated hotels. and five- segments; lower-tier of the government, is expected cities continued to drag on the wider  saw 11 theme to spur growth in domestic market. parks make the top 20 most visited Asia Pacific parks in the annual TEA/ tourism in China’s key cities  Occupancy rates have been AECOM 2015 report. This can be and help to catalyse the trending up in first-tier cities now seen as a direct result of increasing for close on three years and hotel domestic travel within China. economic shift to the service operators are starting to feel and entertainment sectors.” comfortable enough to begin to raise average daily rates (ADRs). James Macdonald, Savills Research

savills.com.cn/research 01 Briefing |China hotel sector May 2016

China-wide hotel market GRAPH 1 overview 4QMA* five-star occupancy rates by tier city, The Chinese hotel market has to Q2/2011-Q4/2015 continually evolve, as generally 1 2 3 revenues remain low and competition 66% continues to mount from new, mixed-use developments. Traveller 64% profiles have also shifted dramatically in recent years, with a shift from 62% business travellers and tour groups to 60% more solo and family leisure travellers.

This has presented challenges for 58% some owners and operators – and opportunities for others. The rapidly 56% enlarging middle class, and rising income levels that have shifted 54% consumption from essentials to 52% non-essentials, and products to

experiences, will favour some hotels 50% and locations over others. Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Source: China National Tourism Administration; Savills Research *4QMA: four quarter moving average, which eliminates seasonal and accidental effects and shows the overall One more recent and notable add trend. The figure is based on the average four-quarterly turnover over a period which each time shifts 1 quarter. to the mix is the emergence of theme parks and the increasing commercialisation of existing tourist GRAPH 2 attractions – and the development of 4QMA five-star ADR by tier city, Q2/2011–Q4/2015 new ones. China is currently home to 11 theme parks that made it into the 1 2 3 top 20 most attended theme parks in 900 Asia, according to analysis from TEA & AECOM. Combined, they recorded 850 over 39.5 million visitors in 2014. 800

Five-star hotel occupancy rates over 750 the last four quarters have risen to RMB their highest levels in recent history, 700 having increased by 4.6 percentage

points (ppts) since the trough of the 650 market in Q3/2013. Second- and

third-tier cities, on the other hand, 600 are still way below their recent peaks in Q4/2011, down 7.7 ppts and 10.4 550 ppts respectively. However, second- tier city markets have clawed back 500 some of their lost occupancy over the Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 last few quarters, and strong growth Source: China National Tourism Administration; Savills Research was seen in Nanjing, Hangzhou and Xiamen in particular. with hotels in the second- and third- sums of money on local products and Nanjing and Hangzhou, the provincial tier cities continuing to reduce ADRs delicacies. capitals of Jiangsu and Zhejiang, are in an attempt to win more business the two most economically active from competing projects. First-tier This trend is changing as the younger and vibrant cities in the Yangtze River cities have seen ADRs largely stabilise generation puts more emphasis on Delta after . They are also over the last two years, with some experiences. Hotels have begun to key tourist destinations for those living hotels starting to apply moderate introduce brands which cater to this in their respective provinces and from hikes to ADRs over the last year. As market who are looking for more further afield. Both cities have recently hotels shift from business to leisure than a traditional hotel stay and also seen a recovery in residential travellers, ADRs are likely to remain want to avoid spending money on prices. under pressure as Chinese tourists unnecessary services. These types are renowned for their frugality when of hotels have more communal ADRs have in large part responded to it comes to accommodation. They spaces, fresh, trendy decor and the trends seen in occupancy rates, are, however, willing to expend large have altered their offerings in order

02 Briefing |China hotel sector May 2016

to provide targeted services desired where services are modified in order The four first-tier cities showed by their guests, such as combining to cater to this market of younger varying year-on-year (YoY) RevPAR their front desk, concierge and lobby generation travellers. changes: Shanghai and Beijing bar into one which frees up capital were both up 1.4% to RMB674 and to upgrade room offerings. Shimao Shanghai continues to lead the pack, RMB536 respectively; Shenzhen and launched MiniMax (Q4/2014) which with the highest ADR of the top ten both showed a decline has integrated social media and largest markets. The city also has the of 0.6% to RMB540 and 6.8% to e-commerce platforms into their end- third highest occupancy rate after RMB556 respectively, resulting in to-end booking process; they also Shenzhen and Xiamen, giving it a RevPARs below RMB350, or lower provide smart rooms which include RevPAR of RMB674. Guangzhou is than Shanghai’s four-star market regulated airflow and water systems. the next highest at RMB556. (RMB366). The Artyzen Hospitality Group The third and fourth largest five- (Shuntak Group) has introduced star hotel markets, Suzhou (28 Theme parks in China citizenM, which focuses on providing hotels) and Chongqing (27 hotels) Background wifi, movies on demand and continue to suffer from over supply, For at least the last five years, China integrates technology to their in-room with occupancy rates of 59% and has been attempting to transition services. Chinese brands such as 55% respectively, and ADRs below itself from a manufacturing and fixed A-tour Hotels follow a similar formula RMB600. asset investment model of growth to

TABLE 1 China hotel key metrics by star rating

ADR (RMB) Occupancy rate RevPAR (RMB)

15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave

5 star 640 -3.0% -6.5% 58.6% 0.7 ppts -0.4 ppts 375 -1.9% -7.2%

4 star 342 -1.2% -3.9% 56.9% -0.8 ppts -2.3 ppts 195 -2.6% -7.6%

3 star 234 3.9% 5.2% 53.8% -1.0 ppts -2.9 ppts 126 2.0% -0.1%

Source: China National Tourism Administration; Savills Research

TABLE 2 China five-star hotel key metrics by city tier

ADR (RMB) Occupancy rate RevPAR (RMB)

15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave

1st tier 850.7 -1.6% -1.8% 67.9% 0.3 ppts 1.6 ppts 576.2 -1.2% 0.7%

2nd tier 583.0 0.4% -6.6% 57.7% 1.5 ppts -1.2 ppts 336.8 2.7% -8.6%

3rd tier 541.1 -4.8% -13.2% 55.7% -0.4 ppts -1.7 ppts 302.8 -6.3% -16.8%

Source: China National Tourism Administration; Savills Research

TABLE 3 China four-star hotel key metrics by city tier

ADR (RMB) Occupancy rate RevPAR (RMB)

15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave 15Q4 YoY Vs 3 yr ave

1st tier 470.8 -0.1% -1.9% 67.9% 0.5 ppts 1.7 ppts 319.5 0.7% 0.6%

2nd tier 361.1 -1.3% -3.7% 59.6% -0.7 ppts -2.6 ppts 216.1 -2.2% -7.6%

3rd tier 335.9 -0.1% -1.5% 57.9% -0.9 ppts -2.5 ppts 194.5 -2.2% -5.8%

Source: China National Tourism Administration; Savills Research

savills.com.cn/research 03 Briefing |China hotel sector May 2016

one driven by consumer demand and GRAPH 3 services. Efforts have been met with Ten largest markets key metrics, Q4/2015 mixed success. Outbound tourism and the search for lowest priced ADR RevPAR Occ goods and services have held back 600 80% the transition of the economy. The 70% latest attempt is to develop the tourist 500 attractions on offer domestically. The 60% 400 hope is that recapturing some of the 50%

outbound tourism will increase tax 300 40% revenues and create a new nexus RMB for the development of the services 30% 200 industry, with attractions such as 20% theme parks tending to have quite 100 significant multiplier effects in local 10% economies. 0 0%

Specific to the hospitality sector, increased tourism of the sort

generated by theme parks will Source: China National Tourism Administration; Savills Research facilitate the development of new hotels in the surrounding locations as well as support the demand for other GRAPH 4 hotels in more central locations as Top 20 visited Asia Pacific theme park distribution tourists might be prone to tag on a by county, 2014 couple of city-stay nights. 3%

China market size 13% China already has a relatively developed theme park market in 32% terms of total attendance. When China looking at the top 20 parks in Asia, it Japan 12% ranks second after Japan (excluding South Korea Hong Kong), and top if we include Hong Kong. Nevertheless, when Hong Kong gauged relative to its population, the Singapore market remains diminutive.

China’s leading theme parks Mainland China saw 11 theme parks make the top 20 ranked Asia Pacific 40% parks in the annual TEA/AECOM 2015 report, though most of these appear in Source: TEA/AECOM, Savills Research the latter half of the table. The largest theme park by attendance is actually Songcheng Park in Hangzhou, which for ways in which to capitalise upon are unlikely to directly capitalise recorded 5.8 million visitors through the number of visitors flocking to on the tourist windfall it is likely to its gates in 2014, up from 4.2 million these parks each year, which as we reap. There will, however, be some the year before. can see from Table 4 is substantial leakage as visitors to may and is expected to continue to rise. decide to add on a couple of day’s Newcomer Chimelong Ocean However, many of the larger theme sightseeing to their Shanghai trip. In Kingdom on Hengqin Island, in parks incorporate their own hotels into order to capitalise on these visitors, , Province, made the actual park. In some cases, such tweaks to their strategies would need the tenth spot in its first year of as Disneyland in Shanghai, in addition to be made, such as becoming more operation, pulling in over 5.5 million to hotels in the park ( Hotel family-oriented by offering services visitors since opening in January and the Hotel), to directly target families visiting 2014. hotels in the surrounding areas will the resort, for example family-sized crop up and predominantly target rooms, babysitting services or What it means for the hospitality visitors to the parks. discounts. sector Existing hotels in cities home to As Disneyland is located outside the Disneyland is not unique in this, as the major theme parks will be looking main hotel districts, existing hotels larger domestic theme park brands

04 Briefing |China hotel sector May 2016

GRAPH 5 also include hotels within the park. Top 20 theme parks in Asia Pacific, 2014 In Guangzhou, Chimelong operates the Chimelong Hotel, while in Zhuhai, 18 30% Chimelong has a number of hotels to 2013 2014 % Change serve its theme parks, including the 15 25% Hengqin Bay Hotel, Penguin Hotel 12 20% and Circus Hotel. Theme parks look to 9 15% capture the full attention of the visitor by providing all the services that they

6 10% might require for a two to three day 3 5% stay. Songcheng Park in Hangzhou, 0 0% about 30 minutes drive from the city centre, features two themed hotels,

million persons -3 -5% the Romance Theme Hotel and The First World Hotel. OCT East in Shenzhen houses six themed hotels in the park, all catering for varying budgets and each offering a unique experience for visitors. The Fantawild brand, owned by the Huaqiang Group, Source: TEA/AECOM, Savills Research also boasts a number of theme parks and hotels around the country. TABLE 4 Operators Top 20 theme parks in Asia Pacific, 2014 Operators of Chinese theme parks are mainly domestic companies, (Million attendees) 2013 2014 % Change the largest being OCT Parks China, which was ranked the fourth largest 17.2 17.3 0.5% theme park group worldwide in terms of attendance after Tokyo Disney Sea 14.1 14.1 0.1% Attractions, Merlin Entertainments, Universal Studios Japan 10.1 11.8 14.4% and Universal Parks and Resorts. Other rising stars include Chimelong Ocean Park 7.5 7.8 4.1% Group and Songcheng Worldwide, Lotte World 7.4 7.6 2.7% ranked ninth and tenth globally. However, many international 7.4 7.5 1.3% operators are eyeing opportunities in

Everland 7.3 7.4 1.1% the China market, with Walt Disney, Universal Studios and Atlantis having Songcheng Park 4.2 5.8 27.7% already committed to China.

Ngashima Spa Land 5.8 5.6 -3.7% Comcast unit, the owners of N/A 5.5 N/A Universal Studios, is partnering with Beijing Shouhuan Cultural Tourism Universal Studios Singapore 3.7 3.8 4.9% Investment Co. Ltd., a consortium OCT East 4.0 3.8 -4.5% of four state-owned companies, to invest in and operate the project in Chanzhou Dinosaur Park 3.6 3.7 2.7% Beijing. The project will be situated on Window of the World 3.3 3.6 9.7% a 120-hectare site in Tongzhou, about 20km east of the city centre, and will Chimelong Paradise 3.2 3.4 4.5% incorporate an entertainment complex

Happy Valley Beijing 3.1 3.3 7.2% and the first ever Universal-branded hotel. Subsequent phases will grow Shenzhen 3.3 3.3 0.6% the park to 400 hectares.

Happy Valley Chengdu 2.6 2.6 0.8% Walt Disney is partnering with Happy Valley Shanghai 2.3 2.4 3.8% Shanghai Shendi Group to develop the , Fantawild Adventure 2.2 2.3 2.2% scheduled to complete in June 2016. TOTAL 112.1 122.5 4.2% The site covers 963 hectares and is estimated to have cost US$5.5 billion. Source: Real Capital Analytics; Savills Research The resort will include Shanghai

05 Briefing |China hotel sector May 2016

Disneyland, an entertainment district, Aside from the development of new hospitality sector remain numerous. two themed hotels, recreational infrastructure, the government has Nevertheless, as the nature and make facilities, a lake and associated also extended the visa-free entry up of this tourism changes and shifts, parking and transportation hubs. period in Shanghai, Jiangsu and and as new sources of competition Zhejiang provinces from 72 hours to emerge, landlords and operators Kerzner International Holdings is 144 hours, aiming to boost tourism will have to continually change their partnering up with Fosun International and business traveller numbers. offering to suit the different needs to develop a 62-hectare resort in and tastes of guests. While this may Sanya, estimated to cost US$1.6 Market News be true in any country, the scale and billion and incorporating the ultra Chinese investors, developers and pace of change in China is, and will luxury One&Only branded hotel. operators seek opportunities overseas continue to be, more dramatic. Increased outbound tourism by Accessibility & location Chinese nationals, global ambitions by Overbuild and the anti-corruption While existing domestic theme parks Chinese companies, and an outflow campaign have sorely impacted are generally situated out of the city of Chinese capital seeking yield high-end business travel. However, centre (albeit accessible by metro driven investment to diversify Chinese with a concerted effort to build the or car, for example Happy Valley in holdings, has led to a surge in interest domestic tourism industry and raise Beijing, operated by Beijing OCT, by Chinese firms for buying overseas the quality of offering, new sources of which is part of the Shenzhen OCT hotel assets and managers. Recent demand will emerge. Hotels will need Holding Group, is situated adjacent to deals have included the acquisition of to adapt to the new environment: metro line 7), ease of access to these Louvre Hotels by the Jinjiang group, positioning and marketing strategies parks can be a crucial element to as well as the acquisition of Strategic to target individuals or families may be their success, with visitors needing to Hotels by the Anbang group and the appropriate from some hotels that are find it relatively convenient to access Waldorf Astoria New York, although outside the main business districts; the facilities. Once there, visitors are their bid for Starwood hotels recently others may look at trimming down immersed in the theme park and all it failed. service provision, lowering costs has to offer, finding little need to see and ADRs to target the more cost- the ‘outside world’ during their visit. Luxury fashion and jewellery brands conscious business traveller. With the arrival of international theme dive into China’s hospitality parks, well-timed developments to Luxury fashion and jewellery brands International hotel chains are also their respective transport systems will have been looking for ways to developing more localised brands be a welcome infrastructure support diversify their operations by opening to better accommodate Chinese to tourists visiting the parks, as well cafés and restaurants, however, more travellers both at home and overseas, as the city as a whole. recently they have also been exploring and fend off competition from options in the real estate sector and emerging Chinese hotel chains. All City infrastructure particularly hospitality and luxury hotels should be looking at how Theme parks, especially the more residential. In China, this is expected loyalty programmes, OTAs and new recently announced ones by to culminate with a number of hotel technology offerings change how international operators, will tend to openings in 2017, including: Bulgari people research and book hotel require large sums of capital and Hotels in Beijing and Shanghai, accommodations, as well as how significant coordination with local Versace Residences Chengdu, the rise of Airbnb or its Chinese planning bureaus. As most, if not all, Armani/Casa Residences Beijing and equivalents may affect their business are located far from the city centre, Karl Lagerfeld Macau. models.  they will often require investment in new infrastructure to facilitate Greenland to inject hotel assets into transportation of park visitors. In RMB21 billion Singapore REIT China, this is likely to be in the form of Greenland, as part of its asset direct metro access. Shanghai Disney light approach that is becoming Resort will be linked to metro line increasingly popular in China, 11, while Universal studios in Beijing announced plans set up a REIT with will have line 7 and the Batong Line investment firm Amare to purchase extended. 19 hotels developed by Greenland for RMB21 billion, and then list on the In addition, the airports in Shanghai Singapore exchange. The plan is still and Beijing will receive increased subject to regulatory approval. capacity, with International receiving a new satellite terminal and Market outlook fifth runway, while Beijing will have a With domestic tourism having grown second international airport based in by a CAGR of 13.7% over the last five the Daxing district, due for completion years, reaching 4 billion person times in 2019. by 2015, the opportunities within the

06 Briefing |China hotel sector May 2016

Project focus Shanghai Disneyland Hotel

Shanghai Disneyland Hotel, Chuansha New Town, Location Pudong New District

Brand Disney

Shanghai International Theme Park & Resort Operator Management Company Ltd.

No. of rooms 420 The Shanghai Disneyland Hotel is a water taxi or short walk away from the Shanghai Disney Resort, the 10km Pudong International Airport 35km from Hongqiao Railway Station Transport links company’s third theme park resort in Asia. The art- 35km from Hongqiao Airport nouveau inspired Shanghai Disneyland Hotel will offer 1 minute walk to nearest metro station 420 rooms as well as themed dining experiences, a gift shop, fitness centre, indoor swimming pool, banquet Handover date Q2/2016 and meeting facilities as well as a wedding pavilion. Slated for launch in June 2016, the project will be a key Rates starting from RMB1,650 excluding service charges component of the Shanghai Disney Resort, owned by Walt Disney and the Shanghai Shendi Group. Source: Savills Research

Please contact us for further information Research Hotels

James Macdonald Nathalia J. Wilson Annie Wang Angel C Chen Director, China Senior Director, Asia Pacific Director, China Beijing Associate Director, China +8621 6391 6688 +65 6415 7589 +8610 5925 2029 +8621 6391 6688*842 [email protected] [email protected] [email protected] [email protected]

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