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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
MARKET ASSESSMENT FOR NEW CENTURY HOTELS B2(e)(vii)
CHINA
[●], 2013
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
TABLE OF CONTENTS
1 HANGZHOU MARKET ...... V-6
1.1 HANGZHOU OVERVIEW ...... V-6
1.2 XIAOSHAN HOTEL MARKET ...... V-20
1.3 NEW CENTURY HOTELS IN XIAOSHAN — SWOT ANALYSIS ...... V-28
2 QIANDAO LAKE MARKET ...... V-30
2.1 QIANDAO LAKE OVERVIEW ...... V-30
2.2 QIANDAO LAKE HOTEL MARKET ...... V-36
2.3 NEW CENTURY RESORT QIANDAO LAKE HANGZHOU — SWOT ANALYSIS ...... V-44
3 NINGBO MARKET V-46
3.1 NINGBO OVERVIEW ...... V-46
3.2 NINGBO HOTEL MARKET ...... V-56
3.3 NEW CENTURY GRAND HOTEL NINGBO — SWOT ANALYSIS ...... V-68
4 CHANGCHUN MARKET ...... V-69
4.1 CHANGCHUN OVERVIEW ...... V-69
4.2 CHANGCHUN HOTEL MARKET ...... V-78
4.3 NEW CENTURY GRAND HOTEL CHANGCHUN — SWOT ANALYSIS .... V-85
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Suite 2006 Central Plaza 18 Harbour Road Hong Kong Tel (852) 2524-6073 Fax (852) 2845-2008 www.horwathHTL.com [email protected] 浩華管理顧問公司 香港港灣道18號中環廣場2006室 電話: (852) 2524 6073 傳真: (852) 2845 2008 電郵: [email protected] 網址: www.horwathHTL.com
[●], 2013
New Century Asset Management Limited (as Manager of New Century Real Estate Investment Trust) Level 18, No. 818 Shixin Middle Road, Xiaoshan District, Hangzhou, China
[●]
HOTEL MARKET ASSESSMENT FOR NEW CENTURY HOTELS IN HANGZHOU, QIANDAO LAKE, NINGBO AND CHANGCHUN
INTRODUCTION
Horwath HTL was engaged by New Century Asset Management Limited to provide an independent market assessment (“Market Study”) of the hotel sectors in Hangzhou, Qiandao Lake, Ningbo and Changchun in connection to the launch of a Real Estate Investment Trust (“REIT”) which has the inclusion of five proposed hotel assets — New Century Grand Hotel Hangzhou, New Century Hotel Xiaoshan Zhejiang, New Century Resort Qiandao Lake Hangzhou, New Century Grand Hotel Ningbo, and New Century Grand Hotel Changchun. This market assessment is prepared for the purpose of incorporation in the Document of the REIT and the information will form part of the Document for the launch of the REIT.
DATE OF ASSIGNMENT
The contract engaging Horwath HTL was executed on January 22, 2013. This report contains information, estimates and assumptions that reflect market conditions as of January 2013.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
SCOPE OF SERVICES
Our scope of work for each property comprises of the following content:
• City Overview
Regional context and background, economic overview, tourism statistics and transportation infrastructure overview.
• Competitive Hotel Market Overview
Review of each hotel market, highlighting historical performance, dynamics of each demand segment, future supply, market outlook, 5-year occupancy projections and ADR outlook.
• Overview of Subject Properties
SWOT of each subject property.
STATEMENT OF PECUNIARY INTEREST
We confirm that Horwath HTL has no pecuniary or other interest in the market that would conflict with proper assessment or could reasonably be regarded as being capable of affecting our ability to give an unbiased opinion. The position will be maintained until the purpose for which this Market Study is being obtained is completed.
INFORMATION UTILISED
Our review is based on information developed from research of the markets, discussions with professionals in the hospitality in the respective cities, certain information provided by New Century Asset Management Limited and Horwath HTL’s knowledge of the industry, which is integral to the outcome of our conclusions and estimations. We have also obtained data and information for this Market Study from a wide range of sources. Whist due care has been undertaken in the application of the information, Horwath HTL has no responsibility to warrant or represent that such information is accurate or correct. We also have no responsibility to update this Market Study for events and circumstances occurring after the date of issuance.
ASSUMPTIONS
This Market Study is based on current as well as the likely future market conditions as perceived by the markets. The estimation of the future demand and supply for the hotel markets may not materialise, and unanticipated events and circumstances may occur; therefore, actual results may vary from our estimates and the variations may be material. We do emphasize that the estimation of the future market conditions and outlook should be regarded as an indicative assessment of possibilities rather than absolute certainties.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
The major findings and conclusions are based, in part, on the following critical assumptions:
• There will be no political or administrative developments that will significantly impact general confidence in China, specifically in Hangzhou, Qiandao Lake, Ningbo and Changchun, to the detriment of business activity, tourist arrivals and domestic travel.
• Support infrastructure such as fresh water, sewage treatment, electricity and gas will be supplied/ generated at a consistent and reliable level to maintain end-user satisfaction.
• The existing transportation system to, from and within Hangzhou, Qiandao Lake, Ningbo and Changchun, will be maintained and improved to meet the accessibility requirements of the cities.
• The economies of the major trading, investor and tourist generating countries to the PRC, specifically Hangzhou, Qiandao Lake, Ningbo and Changchun, will not experience significant and sustained recession in the near future.
Yours sincerely,
Nigel Summers Director Horwath HTL
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1 HANGZHOU MARKET
1.1 HANGZHOU OVERVIEW
1.1.1 Location and Population
Hangzhou is the capital of Zhejiang Province at a sub-provincial administrative level with a total population of 7 million by the end of 2012. It is also an important national tourist city with beautiful scenery and a famous city in history and culture affirmed by the State Council. Located at the southern wing of the Yangtze River Delta (YRD), at the west end of Hangzhou Bay, Hangzhou is one of the most important central cities in the YRD and a hub of transportation in eastern China.
Hangzhou has enjoyed a history of over 2,200 years since the county administration was established in the Qin Dynasty and is one of the cradles of Huaxia (China) Civilization. As the exploration of the Kuahuqiao Site showed, as early as 8,000 years ago, there were human beings living in the Hangzhou area. The Liangzhu culture, over 5,000 years ago, was known as the Dawn of Civilization. Hangzhou, one of the seven ancient capitals of China, was the capital of Wuyu State, of the Five-Dynasties and also the capital of the Southern Song Dynasty.
The following map indicates Hangzhou’s location relative to the rest of Zhejiang province:
HANGZHOU’S LOCATION RELATIVE TO THE REST OF ZHEJIANG PROVINCE
Source: www.chinahighlights.com
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Under the jurisdiction of Hangzhou are 8 districts of Shangcheng (上城), Xiacheng (下城), Jianggan (江幹), Gongshu (拱墅), Xihu (西湖), Binjiang (濱江), Xiaoshan (蕭山) and Yuhang (余杭), 3 county-level cities of Jiande (建德), Fuyang (富陽) and Lin’an (臨安), and 2 counties of Tonglu (桐廬) and Chun’an (淳安). Together, all these districts of Hangzhou cover a total area of 16,596 square kilometres, including an urban area of 3,068 square kilometres.
1.1.2 Climate
Hangzhou’s natural environment integrates rivers, lakes and hills. Its west, middle and south belong to the hilly area of West Zhejiang and northeast to the plain of North Zhejiang. Hangzhou has long been reputed as the ‘Land of Fish and Rice, the Land of Silk and Paradise on the Earth’ with rivers and densely scattered lakes. In terms of its weather, Hangzhou has a subtropical monsoon climate with four distinct seasons, with an average annual temperature of 17.5 Celsius, average relative humidity of 69.6 percent, annual rainfall of 1,139 millimetres, and annual sunshine time of 1,762 hours.
1.1.3 Economic Overview
1.1.3.1 Economic Indicators
ECONOMIC INDICATORS, HANGZHOU, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Registered Population (’000) 6,724 6,776 6,834 6,891 6,957 7,005 1% % Growth 0.9% 0.8% 0.9% 0.8% 1.0% 0.7% GDP (RMB bn.) 410 478 510 595 701 780 14% Growth % 19% 17% 7% 17% 18% 11% — Fixed Asset Investment (RMB bn.) 168 196 229 275 311 372 17% Growth % 15% 17% 17% 20% 13% 20% — Retail Sales (RMB bn.) 130 156 180 215 255 294 18% Growth % 17% 20% 15% 19% 19% 15% — Urban Disposable Income (RMB) 21,689 24,104 26,864 30,035 34,065 37,511 12% Growth % 14% 11% 11% 12% 13% 10% — Utilized Foreign Investment (USD bn.) 5.58 6.23 6.97 7.71 8.17 8.27 8% Growth % 4% 12% 12% 11% 6% 1% — Import and Export (USD bn.) 43 48 40 52 64 62 8% Growth % 12% 12% -17% 30% 23% -3% —
Source: Bulletin of Statistics of National Economy and Social Development of Hangzhou (2006 — 2012)
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
In 2008 and 2009, despite the negative effects of several natural disasters and the global financial situation, Hangzhou’s GDP reached RMB 478 billion and RMB 510 billion respectively, up by 11 and 10 percent respectively over previous years and higher than the GDP growth for China as a whole. From 2010 to 2012, GDP growth rate was double digits, reaching RMB 780 billion by 2012. From 2007 to 2012, Hangzhou’s GDP grew by 14 percent CAAG.
According to information available from the Hangzhou government, up to 2012, the city has recorded double digit GDP growth for a consecutive 21 years (with the exception of 2009 due to the financial crisis), signalling strong and stable growth for the city’s economy, even under the pressure of the global financial situation in recent years.
In terms of industrial structure, Hangzhou has developed a fairly solid industrial base. Manufacturing and Services contribute almost 50 percent each to GDP, with Agriculture providing only a few percentage points to Hangzhou’s GDP. Specifically, electronic information, pharmaceutical chemicals, mechanical manufacture, weaving and clothing, and foods and beverages are the five mainstay industries.
With regard to foreign investments, Hangzhou attracted 510 foreign investment projects in 2012, a slight increase from 2011. Utilized FDI increased too, by 1 percent to USD 8.27 billion. As for investment and spending in Hangzhou, the city’s fixed asset investment increased by 20 percent to RMB 372 billion in 2012 while the growth of retail sales showed an increase of 15 percent over 2011 to reach RMB 294 billion by year end 2012.
1.1.4 Transportation Infrastructure
Over the last few years, significant capital has been invested on improving the transportation infrastructure in Hangzhou and Zhejiang province. Land, air and rail networks have been expanded, allowing the city to be more integrated with the region, in turn spurring local economic and tourism growth.
HIGHWAYS AND RAILWAYS LINKING XIAOSHAN WITH KEY CITIES
Source: Hangzhou Olympic Sports Expo Centre Website
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.4.1 Air
Hangzhou’s air accessibility is provided via Hangzhou Xiaoshan International Airport, completed at the end of 2000. The passenger, cargo and mail handling capacities of Xiaoshan International Airport have been consistently listed among the top ten airports nationwide. With the expansion of the airport, Hangzhou Xiaoshan International Airport is now ranked top 5 in China in terms of total handling capacity.
In December 2012, the second runway started operation. This runway is built to accommodate the A380 jumbo jet. In addition to the new runway, the second domestic terminal also opened. Together with the new international terminal that opened in 2010, Hangzhou Xiaoshan International Airport is now capable of handling 33 million passengers a year, as well as 805,000 tonnes of cargo.
XIAOSHAN INTERNATIONAL AIRPORT TRAFFIC, 2007-2012
Passenger No. of Cargo Arrivals % Change Flights % Change (tonnes) % Change 2007 11,729,983 — 114,672 — 195,645 — 2008 12,673,198 8% 118,560 3% 210,793 8% 2009 14,944,716 18% 134,058 13% 226,308 7% 2010 17,068,585 14% 146,289 9% 283,427 25% 2011 17,512,224 3% 149,480 2% 306,243 8% 2012 19,115,320 9% 166,340 11% 338,371 10% CAAG 10% — 8% — 12% —
Source: Civil Aviation Administration of China
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.4.2 Railway
Hangzhou is Zhejiang’s rail hub for three double-track railways — Shanghai-Hangzhou Railway, Zhejiang-Jiangxi Railway and Hangzhou-Ningbo Railway. An express railroad opened in February 2007, connecting Shanghai and Hangzhou and reducing travel time between the two cities to 90 minutes. This train currently departs from Hangzhou East Train Station eight times daily. With the completion of the ‘Special Express Railway Line’ for passenger transportation from Shanghai to Hangzhou (滬杭鐵路客運專線), travel time between the two cities has been shortened to 50 minutes, with the trains travelling at 350 kilometres per hour.
Furthermore, the Hangzhou-Nanjing Express Railway (杭寧高鐵) is expected to open by the second half of 2013, with trial runs already in operation. The Shanghai-Hangzhou-Ningbo-Wenzhou-Xiamen-Shenzhen Express Railway (滬-杭-甬-溫-廈-深 高速鐵路) is also in its final phase of construction at present, with the last segment between Xiamen and Shenzhen last to be completed. With the completion of these railway lines, Hangzhou will achieve the goal of ‘Two-hour Transportation Circle within YRD’.
HANGZHOU-NANJING EXPRESS RAILWAY
Source: Baidu Baike
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.4.3 Subway
Hangzhou also has extensive plans for improving local transportation infrastructure with eight subway lines to be completed by 2050. The entire metro network has a total length of 278 kilometres with an estimated investment of RMB 100 billion. Phase 1of the project, consisting of part of Line 1, Line 2 and Line 4, has commenced construction in March 2007. Line 1 has since been put into operation. Upon the completion of Phase 1, the basic framework of Hangzhou subway system would be established, linking downtown Hangzhou and such three main areas as Xiasha, Linping (臨平) and Jiangnan (江南). The details of Line 1 and Line 2 are as follows:
• Line 1: Line 1 will start from Xianghu Station (湘湖站) in Xiaoshan and terminate at Wenze Road Station (文澤路站) in Xiasha and Century Avenue Station (世紀大道站) in Linping, mainly comprising three sections of downtown city, Jiangnan, Xiasha and Linping.
• Line 2: Line 2 will run through the city in a northwest-southeast direction and connect the downtown with the Jiangnan and Liangzhu (良渚) areas.
LINE 1 (ALREADY IN OPERATION)
Source: Baidu Baike
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
FUTURE LINE 2 LINKING NEW CENTURY HOTELS TO HANGZHOU
Source: Wikipedia FUTURE METRO DEVELOPMENT
Source: Baidu Baike
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.4.4 Highway
Several high-speed expressways link Hangzhou to other notable locations in the region such as Shanghai, Ningbo, and Nanjing. According to city planning officials, industrial development has mushroomed along the routes between (also the railroad routes) Shanghai — Hangzhou, and Hangzhou — Ningbo; another route Hangzhou — Qiandao Lake was linked by an expressway at the end of 2005. Furthermore, officials also indicated that the part of the high-speed expressway bisecting the city has been further split into two routes — one passing through the city centre, and the other passing through the more specialized industrial zones east of the city along Xiasha and Xiaoshan.
With the completion of the Hang-Qian (杭千) Expressway and Hang-Hui (杭徽) Expressway in 2006, Hangzhou realized its goal of having a “One Hour and a Half Transportation Circle”. Currently, the city is accessible from every county in Zhejiang province via an expressway. Also, with Hangzhou Bay Bridge (杭州灣大橋), the world longest transoceanic bridge, put into operation in 2008, Hangzhou becomes more closely connected to Shanghai city.
1.1.5 Hangzhou Tourism Statistics
Hangzhou, with its natural scenery of “One lake, two towers, three islands and four dams”, is one of the most significant tourist attractions nationwide. There is a famous Chinese saying, “In heaven there is paradise, on earth there is Suzhou and Hangzhou”, also attesting to Hangzhou’s famous scenic and natural attractions. At the same time, the city has historical and cultural significance as the country’s capital during the Wu and Yue kingdoms in the 10th century, as well as the capital of the Southern Song Dynasty during the 12th and 13th century.
TOURISM STATISTICS, HANGZHOU, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Domestic Visitor Arrivals (’000s) 41,119 45,517 50,937 63,049 71,810 82,368 15% Domestic Tourism Receipts (RMB mil.) 54,860 61,720 70,890 91,090 106,380 125,352 18% International Visitor Arrivals (’000s) 2,086 2,213 2,304 2,757 3,063 3,311 10% Tourism Foreign Exchange Rev (US mil.) 1,119 1,296 1,380 1,690 1,960 2,202 14%
Source: Hangzhou Statistical Yearbook and Bulletin of Statistics of National Economy and Social Development of Hangzhou (2006 — 2012) Note: The domestic tourism receipts were calculated from the difference between total tourism income and foreign exchange receipts from international tourism. An exchange rate of 6.3 announced by PBOC on the date of 2012 Bulletin of Statistic of National Economy and Social Development of Hangzhou was used to convert foreign exchange receipts from USD to RMB.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
PROPORTION OF DOMESTIC VS. INTERNATIONAL VISITOR ARRIVALS, HANGZHOU, 2007-2012
2007 2008 2009 2010 2011 2012 Domestic Arrivals 95% 95% 96% 96% 96% 96% International Arrivals 5% 5% 4% 4% 4% 4%
Source: Bulletin of Statistics of National Economy and Social Development of Hangzhou (2006 — 2012)
It should be highlighted that, though the tourism statistics presented above are extracted from the official government database, these figures should be cautiously interpreted as there can be instances of multiple counting when total domestic arrivals are calculated based on total visitors to all major attractions in the city.
1.1.5.1 Tourism Development
Over the last few years, the city’s tourism development plan has focused on efforts to improve tourism infrastructure and enhance the overall visitor experience. These efforts include beautification of the city’s primary attraction, the West Lake, with the construction of pedestrian friendly streets on the eastern banks of the lake around Nanshan (南山) Road and Hubin (湖濱) Road, which has now become one of the busiest tourists sightseeing roads in Hangzhou.
At the same time, efforts are underway to heavily preserve the city primarily for tourism purposes. To this end, tourist-facilitating amenities will be concentrated in the city centre, while other uses such as industrial or educational facilities will be moved outside to areas such as Xiaoshan, Binjiang and Xiasha.
Specifically, with regard to future tourism development plans, the government has long-term plans to improve the appeal of many already established tourism destinations and further market the undeveloped destinations in the area. Some examples of the tourism initiatives in planning are:
West Lake Area
West Lake was recently awarded UNESCO World Heritage status. This was partly due to the government’s plan to develop the Wushan area, rebuild Leifeng Tower and expand Jingsi Temple and Lingyin Temple. With the award, West Lake has further strengthened its status as an internationally recognized destination.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
‘Two Rivers and One Lake’ Area
To protect the ecological environment of the Fuchun-Xin’an Rivers and Qiandao Lake, and further develop scenic locations such as the Longmen Old Town, Yaolin, Baiyunyuan, and Qiandaohu Meifeng area.
Xixi Wetland Area
To develop a sustainable tourism destination, with strong emphasis on protecting the natural ecological environment and integrating with the local cultural attractions, customs, and folk art. The first phase of the Xixi National Wetland Park was opened to the public in May of 2005. Resorts that have opened in Xixi National Wetland Park include Banyan Tree, Wyndham, Sheraton and Angsana.
Xianghu, Xiaoshan
The next big development is located at Xianghu in Xiaoshan District. This is discussed in the subsequent section.
1.1.6 Xiaoshan District (蕭山區)
As one of Hangzhou’s 8 districts, Xiaoshan District lies to the east of the city, across the Qiantang River. The district is home to 1.2 million inhabitants, occupying a total area of 1,420 square kilometres. Xiaoshan has a long history dating back to 8,000 years ago.
In comparison to the other districts of Hangzhou, Xiaoshan is the industrial base of Hangzhou. It was facilitated by Xiaoshan International Airport (handled 19.1 million passengers in 2012) and Xiaoshan Economic and Technological Development Zone (XETZ). Textiles, printing, dyeing, and automobile parts manufacturing are major contributors of Xiaoshan’s economy. In 2012, Xiaoshan’s District’s GDP was RMB 161.1 billion.
Moving forward, Xiaoshan is trying to develop its tourism industry that has lagged behind Hangzhou City. To that effect, the government has spent much effort developing a new tourism destination called Xianghu.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.6.1 Xiaoshan Development Zones
XETZ (蕭山經濟技術開發區) was started in 1993, comprising of a total land area of 181 square kilometres. It comprises of three large developments zones: Shibei Area（市北區塊）, Jiangdong Area（江東區塊）and Qiaonan area（橋南區塊）.
THREE AREAS MAKING UP THE XETZ
Source: xetz.gov.cn
As of June 2012, XETZ has 550 approved foreign-funded enterprises, with a total investment of USD 8.4 billion. Major industries operating in XETZ include manufacturing companies in the following industries: electronics, automobile, textile and clothing, furniture and medicine. XETZ has also attracted 14 of the Global Fortune 500 companies. In 2011, XETZ contracted USD 490 million of foreign investments, and achieved a total industrial output of RMB 56.1 billion.
CONNECTIVITY OF XETZ WITH OTHER YANGTZE RIVER DELTA CITIES
Source: xetz.gov.cn
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.6.2 Xiaoshan Tourism
At current, Xiaoshan is not a major tourist destination in itself although there are resorts (Crowne Plaza Xanadu, First World etc) as well as theme parks (Rotten Apple, Hangzhou Polar Ocean Park, Hangzhou Paradise Theme Park etc). Most tourists arriving via Xiaoshan International Airport would still prefer to stay in the vicinity of West Lake, the pre-eminent tourist attraction in the city. However, Xianghu (which is really made up of smaller attractions) could potentially draw many tourists when it is fully developed.
Although Xianghu is currently less famous than West Lake, the lake was formed earlier than West Lake, according to archaeological findings. In fact, there is a museum on site that features an 8,000-year-old boat (claimed to be the earliest boat crafted in the history of mankind). Surrounding Xianghu are mountains, which makes the lake extremely picturesque.
During the Ming Dynasty, a cross-lake bridge was built over the narrowest part of the lake, thus dividing the lake into the upper and lower lakes. Due to sedimentation and various other reasons, a major part of the lake disappeared. However, in the past couple of years, the government has restored the lake to its former glory. Currently, phase three works are in progress, to expand the surface of the lake (eventually 7.4 square kilometres) to be even larger than West Lake (6.4 square kilometres). In addition, there are plans to connect the lake to Qiantang River, thus allowing cruise boats to enter the lake.
The Xianghu Tourist Information Centre is currently located at Phase 1 of the development. Other than providing tourist with information on sight seeing areas around the lake, the information centre is also connected to Xiasun Cultural Village, where restaurant and coffee bars are located. In addition to the traditional cultural shows, there is also an old pedestrian street with retail shops in Xiasun Cultural Village. However, the area is not mature yet since Xianghu is still in its early stage of development. Therefore, the tourist flow to the area is slow, except the restaurants inside, which seem to be doing well too.
Other than the boat museum, there is also going to be a new kiln museum to be developed by Harvard University. The museum will be set within an old kiln factory and be located in Phase 2 of Xianghu. In addition, there are three theme parks in Xianghu: Hangzhou Paradise, Rotten Apple and Hangzhou Polar Ocean Park.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.1.6.3 Hangzhou Olympic Sports Expo Centre
Hangzhou Olympic Sports Expo Centre (HOSEO) is currently being built in phases along the Qiantang River, between Xiaoshan and Binjiang Districts. Since it is located on the banks of Qiantang River, it will enjoy views of Qianjiang New CBD across the river. In total, HOSEO will comprise of 12 different projects spread over 583 hectares of land. These 12 developments include a stadium as well as an international expo centre. The total investment is reported to reach RMB 27.18 billion.
HANGZHOU OLYMPIC SPORTS EXPO CENTRE (HOSEO)
Source: HOSEO website
The International Expo Centre is expected to increase room nights demand in both Binjiang and Xiaoshan. Even though there are hotels planned for HOSEO, it is unlikely that these hotels would be sufficient when HOSEO hosts large scale events.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
METRO LINKS HOSEO TO HANGZHOU CITY AND XIAOSHAN DISTRICT
Line 2
Line 1
Source: HOSEO website
The International Expo Centre has a GFA of 840,000 square metres, much larger than Hangzhou Peace International Conference & Exhibition Centre (144,000 square metres). Therefore, the International Expo Centre would be able to hold 7,500 international standard booths. Currently, Zhejiang Provincial Party Committee is trying to bid for the hosting of the 8th National City Games at HOSEO in 2015.
1.1.7 Conclusion
Overall, Xiaoshan is likely to remain a primarily industrial city with the continued expansion of its industrial zones. Going forward, tourism is an area where Xiaoshan can potentially develop, especially the scenic area of Xianghu. With the opening of more metro lines connecting Xiaoshan district to Hangzhou city, it is also likely that the economies of both cities will align themselves closer to complement each other better. Value conscious FIT travelers looking to visit West Lake would consider staying in Xiaoshan due to hotels that offer good value as well as the increased connectivity due to the metro.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.2 XIAOSHAN HOTEL MARKET
1.2.1 Competitive Set
Therefore, this competitive market analysis is based on a study of 8 domestic and international hotels that best represent what would be considered as the top-tier competitive market in Xiaoshan. SELECTED COMPETITIVE SET, XIAOSHAN
Official Star Opening Room No. Hotel Rating Year Count Primary Competitive Set 1 First World 第一世界 5 2006 362 2 Crowne Plaza Xanadu 5 2006 301 3 New Century Grand Hotel Hangzhou Hangzhou 5 2005 699 4 Jinma Palace 金馬 5 1996 600 Sub Total 1,962 Secondary Competitive Set 1 Holiday Inn — 2007 415 2 Kaihao 凱豪 4 2007 98 3 Baosheng 寶盛 4 2001 277 4 New Century Hotel Xiaoshan Zhejiang 4 1988 375 Sub Total 1,165 Grand Total 3,127
Source: Google Maps
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.2.2 Historical Performance
HISTORICAL PERFORMANCE, PRIMARY COMPETITIVE MARKET, 2010—2012
Room Nights Room Night Occupancy ADR RevPAR Available Demand % (RMB) (RMB) 2010 716,130 — 448,676 — 63% — 472 — 296 — 2011 716,130 0% 442,218 -1% 62% -1% 507 7% 313 6% 2012 716,130 0% 424,572 -4% 59% -3% 523 3% 310 -1% CAAG 0% — -3% — -3% — 5% — 2% —
Note: Annual change in occupancy is in percentage point basis.
HISTORICAL PERFORMANCE, SECONDARY COMPETITIVE MARKET, 2010-2012
Room Nights Room Night Occupancy ADR RevPAR Available Demand % (RMB) (RMB) 2010 423,765 — 266,159 — 63% — 321 — 202 — 2011 423,765 0% 244,601 -8% 58% -8% 333 4% 193 -4% 2012 416,465 -2% 231,723 -5% 56% -3% 332 0% 186 -4% CAAG -1% — -7% — -6% — 2% — -4% —
Note: Occupancy percentage changes are percentage point changes
Primary Competitive Set: The top-tier hotel market in Xiaoshan has been stable for the past three years with no new supply entering the market. Because of China’s slowing economy in 2011/2012, there was a slight drop in RND resulting in a drop in the market wide occupancy level. On the whole, ADR has had healthy growth of 5 percent CAAG, breaching the RMB 500 mark in 2011. As a result of faster ADR growth than occupancy decline, the market wide RevPAR grew by 2 percent annually from 2010 to 2012.
Secondary Competitive Set: The upper-tier hotel market in Xiaoshan experienced similar trends to the top-tier market, with no new supply for the past three years. However, there was a slight drop in RNA because New Century Hotel Xiaoshan Zhejiang closed some rooms for renovation. Market wide occupancy still fell in 2012 from 58 percent in 2011 to 56 percent in 2012 because RND dropped faster than the drop in RNA. In comparison with the top-tier market, RND in the upper-tier market also dropped more drastically over the period 2010 to 2012 (-7 percent CAAG). The ADR of the market grew over the same period, although to a smaller extent when compared with the primary competitive set (2 percent CAAG from 2010 to 2012). Because the drop in occupancy rate was higher than the increase in ADR from 2010 to 2012, RevPAR experienced a negative 4 percent growth CAAG.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Entire Competitive Set: On the whole, ADR and RevPAR difference between the primary and secondary competitive set has been widening from 2010 to 2012, signifying a maturing market with increasing segmentation.
1.2.3 Demand Segmentation
DEMAND SEGMENTATION, COMPETITIVE MARKET, 2012
1.2.3.1 MICE Demand Segment
• The largest demand generator of room nights in Xiaoshan is MICE demand due to the presence of many hotels with extensive meeting facilities. Meetings held in Xiaoshan would incur less cost than holding a similar meeting in Hangzhou.
• In 2012, an estimated 250,000 room nights demand came from this segment.
• Unlike Hangzhou, most of the meetings held in Xiaoshan are not incentive meetings. Instead, the majority of meetings are for internal annual meetings, training sessions as well as product launches.
• With a few hotels featuring more than 3,000 square metres of meeting space, Xiaoshan has established itself as an alternative meetings venue to Hangzhou. Its competitive edge would be its relatively close distance to Hangzhou at a much lower price point.
1.2.3.2 Corporate Demand Segment
• The second largest demand generator was Corporate Contracts, which comes from the large base of domestic (and increasingly international) companies that have their offices located in Xiaoshan. In 2012, approximately 230,000 room nights demand was from this segment.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Corporate demand is generated in the vicinity of Xiaoshan district, including XETZ Qiaonan Area (橋南區塊) and XETZ Shibei Area (市北區塊). Because there is no decent upper-tier and top-tier hotels in XETZ Jiangdong Area (江東區塊), top-tier guests visiting this zone would still make an effort to stay in Xiaoshan district.
• On the other hand,although Binjiang New Area（濱江區）is a commercially active area, there is not much overflow of corporate demand due to the presence of international hotels of good repute in the area (FourPoints by Sheraton, Ramada etc).
1.2.3.3 FIT Demand Segment
• In 2012, 13 percent of demand was from FIT guests, contributing approximately 85,000 room nights demand.
• The majority of FIT guests in Xiaoshan are Corporate FIT guests rather than Leisure FIT guests since Xiaoshan is not a leisure destination in itself.
• The FIT segment is typically the highest yielding segment for hotels since guests from this segment typically pay the highest rates in the market. With only 13 percent of demand from the FIT segment, it is not surprising that Xiaoshan top-tier hotels have relatively low ADR, especially when compared with hotels in Hangzhou city itself.
1.2.3.4 Leisure Group Demand Segment
• Leisure Group demand in 2012 was approximately one-tenth of total demand in Xiaoshan, contributing approximately 60,000 room nights. Although Hangzhou has traditionally been a very strong leisure market, Xiaoshan has lagged behind in this aspect. This is because Hangzhou has the famed West Lake, which was just awarded UNESCO World Heritage status a few years ago.
• Some lower yielding Leisure Groups would stay in Xiaoshan and travel 45 minutes to West Lake in order to save on accommodation.
• The greatest tourism resource Xiaoshan has is its newly opened Xianghu Lake. We believe Xiaoshan’s tourism sector will improve, but this will still require many years of development and investment in facilities and infrastructure at Xianghu.
1.2.3.5 Other Demand Segment
• Other demand includes government demand, airline demand as well as long stay demand. It represents just 6 percent of the total demand source in 2012, which translates into approximately 40,000 room nights.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.2.4 Nationality Mix
NATIONALITY MIX, COMPETITIVE MARKET, 2012
Note: Hong Kong, Macau and Taiwan are included under Asia.
On the whole, Xiaoshan is still a domestically driven market. Since most international guests visiting Hangzhou would choose to stay in Hangzhou city itself (specifically in the areas surrounding West Lake), international guests in Xiaoshan are mostly guests on business trips. Most international guests are also from Asia Pacific, especially since Xiaoshan airport connects Hangzhou to Japan, South Korea, Taiwan, Singapore, Thailand, Indonesia, India, Malaysia and Vietnam. With only one airline offering direct flights to Europe (KLM) and none serving North America, we do not expect European/American demand to increase in the near future.
1.2.5 Seasonality
MONTHLY SEASONALITY TREND, COMPETITIVE SET, 2011
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Seasonality in the market is not obvious in Xiaoshan as top-tier hotels mostly serve corporate guests. Because corporate business is typically slow in between the start of the new calendar year and the Lunar New Year, the months with the lowest occupancies would be January and February.
1.2.6 Additions To Supply
SUPPLY ADDITIONS, COMPETITIVE MARKET
Hotel District Opening Year Room Count Jinma See Map January 2013 420 Landison See Map June 2013 300
Note: Map of current hotels and new supply hotels are located in Section 1.2.1.
XIAOSHAN UPPER-TIER HOTELS, ESTIMATED NEW SUPPLY, 2013-2017
2013 2014 2015 2016 2017 New Supply: Jinma Hotel 420 Landison Hotel 100 200 New Supply for the Year 520 200 0 0 0 Total Market Supply 3,647 3,847 3,847 3,847 3,847 % Change 18% 5% 0% 0% 0%
Note: Approximately 1 percent of the growth in New Supply in 2013 is due to the reopening of the renovated rooms of New Century Hotel Xiaoshan Zhejiang.
Please note that this list is not intended to disclose all known and possible hotel additions to the competitive market in the future but highlights the most likely projects to be completed. It should also be noted that many projects may often fall behind the scheduled opening dates, or may even cease due to myriad factors, such as an inability to secure financing.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.2.7 Competitive Market Outlook
1.2.7.1 Market Occupancy Outlook
SUMMARY OF OPPORTUNITIES & CHALLENGES
OPPORTUNITIES CHALLENGES
• The effects of the newly opened Metro • Traffic conditions in Xiaoshan district is Line that connects Hangzhou with increasingly becoming like Hangzhou city Xiaoshan has yet to be seen. Since it during peak hours. For the city to be reduces the physical travelling time viewed as commercially friendly, some between both commercial centers, it is traffic control measures should be expected that ADR and occupancy of both considered. markets will draw closer, even though the • Xiaoshan is likely to remain in the shadow margin is still expected to be large. of its bigger sister, Hangzhou. Most • Tourism in Xiaoshan has the opportunity to international branded hotels would still take root should the development of choose to open in Hangzhou city itself, Xianghu be carried out carefully. Although although Xiaoshan is in need of a boast in resorts in Xiaoshan are likely to benefit ADR, which can be facilitated by the from this opportunity most, Xiaoshan introduction of international brand name district hotels are also expected to benefit hotels. marginally. • Xiaoshan International Airport’s inability • Xiaoshan district is located much closer to to attract international flights to cities in the airport than Hangzhou city. With the Europe and America will prevent more development of the city’s infrastructure, international visitors from visiting. there could potentially be some relocation • We also expect a slight drop in market of offices to Xiaoshan to benefit from occupancy in 2013 due to the opening of 2 increased connectivity, cheaper rents and more top-tier hotels. slightly better traffic conditions. • Probable decline in MICE demand in 2013 due to temporary cancellation or / and downsize of many government MICE events after the 18th National Congress of the Communist Party of China. This would have a relatively big impact on Xiaoshan since it has a large MICE demand base.
ESTIMATED OCCUPANCY PROJECTIONS, COMPETITIVE MARKET, 2012-2017
Room Night Room Night Available % Change Demand % Change Occupancy 2012 1,132,595 — 656,256 — 58% 2013 1,331,155 18% 737,898 12% 55% 2014 1,404,155 5% 808,534 10% 58% 2015 1,404,155 0% 854,605 6% 61% 2016 1,404,155 0% 870,365 2% 62% 2017 1,404,155 0% 886,912 2% 63% CAAG 4% 6% 2%
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
On the whole, the Xiaoshan market has been relatively stable because of the nature of the industries that support the hotels. Going forward, we are expecting a small drop in occupancy when two large hotels open in 2013. However, the market should be able to absorb this new increase in supply and break the 60 percent mark by 2015. Healthy occupancy rates from 2015 to 2017 is due to the projected opening of Hangzhou Olympic Sports Expo Centre (蕭山奧體中心) in 2014, which should boost the meetings demand segment in Xiaoshan. In addition, there are no projected new supply entering the Xiaoshan market from 2015-2017.
1.2.7.2 Market ADR Outlook
• Xiaoshan has historically been a relatively stable market. All hotels in the competitive set has been in operation for at least 5 full years. There has not been new entrants into the market during the past five years.
• ADR in the market has also experienced relatively stable growth in the past five years, with ADR growing between 4.5 percent to 6.5 percent each year.
• In particular, these two hotels were market leaders in growth of ADR:
• New Century Grand Hotel Hangzhou, the current market leader in terms of ADR, showed a five year ADR growth of 5.5 percent (CAAG). Its growth in the past three years was even faster at approximately 8.5 percent CAAG.
• The second fastest ADR growth leader in the market is New Century Hotel Xiaoshan Zhejiang, with a five year ADR growth of approximately 3 percent CAAG and a three year ADR growth of approximately 6 percent CAAG.
• Two new hotels are expected to enter the market in 2013, which would temporarily slow the growth of market wide ADR.
• Based on the historical trends and future market supply and demand conditions, an optimistic ADR outlook is pictured for this competitive market.
• Therefore, market ADR is expected to show a relatively positive CAAG of about 3 to 5 percent over the next five years, with 2013 and 2014 growing at the lower end of the range due to new supply entering the market. Thereafter, slightly higher growth in ADR is expected.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
1.3 NEW CENTURY HOTELS IN XIAOSHAN — SWOT ANALYSIS SWOT ANALYSIS FOR NEW CENTURY HOTELS IN XIAOSHAN
STRENGTHS WEAKNESSES
• Affiliated to an established and • New Century Hotel Xiaoshan Zhejiang has well-known domestic brand. 80 small rooms at 20 square metres. These rooms would be less marketable as new • Both the five star and four star New hotels with bigger rooms open. The hotel Century Hotels would be able to could consider merging rooms to create complement one another. Price sensitive larger suites. guests can be referred to New Century Hotel Xiaoshan Zhejiang whereas • Major construction work around the upselling to New Century Grand Hotel vicinity of New Century Grand Hotel Hangzhou can apply to other guests. Hangzhou due to the construction of the Metro lines is likely to reduce the Hotel’s • With the opening of Line 1 of the prestige temporarily due to the noise and Hangzhou Metro, both hotels are more dust generated in the area. However, this is connected to Hangzhou city. Price only a temporary weakness. sensitive FIT guests might consider staying in Xiaoshan to avoid paying higher • New Century Hotel Xiaoshan Zhejiang has prices in Hangzhou. meeting facilities that are generally smaller than the market’s average. In fact, • New Century Grand Hotel Hangzhou’s the Hotel has the second smallest total location at the junction of Jincheng Road function space in the competitive set. and Shixin Road can be considered a prime location in Xiaoshan. In addition, the Hotel iconic tower increases the Hotel’s visibility. • New Century Hotel Xiaoshan Zhejiang has built up a good reputation in the market because it was the first upper-tier hotel that opened in Xiaoshan in 1988. It has therefore been able to maintain a solid performance despite its age. • New Century Grand Hotel Hangzhou’s standard room size at 35 square metres is slightly larger than the market average. • New Century Grand Hotel Hangzhou has the most extensive dining facilities in the market, with 10 different F&B outlets. New Century Hotel Xiaoshan Zhejiang, on the other hand, has the second most extensive dining facilities in the market, with 6 different outlets. • New Century Grand Hotel Hangzhou and New Century Hotel Xiaoshan Zhejiang perform well in the Chinese private dining market, with 39 and 38 private dining rooms respectively. • New Century Grand Hotel Hangzhou is the market leader in the primary competitive set in terms of RevPAR and New Century Hotel Xiaoshan Zhejiang is the market leader in the secondary competitive set. • New Century Grand Hotel Hangzhou was the market leader in the following F&B segments: Coffee Shop, Chinese Restaurant, Lounge and Bar. As a result, the Hotel produced high F&B revenue in 2011. • New Century Hotel Xiaoshan Zhejiang also performed well in the following F&B segments: Coffee Shop, Chinese Restaurant. In addition, this Hotel managed to score the highest profit margin in the comparable hotel set in 2011.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
OPPORTUNITES THREATS
• Since both Hotels are located just 15 • New hotels are included in the master plan minutes away from the Hangzhou Olympic of Hangzhou Olympic Sports Expo Centre. Sports Expo Centre, they are expected to Since they are likely to be top-tier hotels, benefit from increased demand in the they will compete with New Century Xiaoshan meetings segment. Grand Hotel Hangzhou to some extent when they eventually open. • New Century Grand Hotel Hangzhou should benefit from the opening of Lines 2 • Together with other hotels in the secondary and 5, whereas New Century Xiaoshan competitive set, New Century Hotel Hotel should benefit from the opening of Xiaoshan Zhejiang has experienced Line 2. Line 2’s connectivity with challenges in terms of occupancy rates. Qiantang new CBD, as well as West Lake This is because there were new three-star is expected to increase the appeal of and four-star hotels opening in Xiaoshan Xiaoshan hotels. Most importantly, New that have captured some of the guests from Century Grand Hotel Hangzhou would the upper-tier segment. only be seven stops away from Qiantang new CBD on Line 2. • Both hotels should benefit from their close proximity to Xianghu, which has potential to be the pre-eminent tourist destination in Xiaoshan. • With limited new supply entering the Xiaoshan market from 2013 to 2017, the market should have the ability to increase its ADR and occupancy. • New Century Grand Hotel Hangzhou has the two largest ballrooms in the market at 1,000 square metres each. Currently, one ballroom is undergoing extensive renovation to extend the ceiling height, as well as incorporate natural lighting. It is expected that these features would make the ballroom even more attractive for banquets.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2 QIANDAO LAKE MARKET
2.1 QIANDAO LAKE OVERVIEW 2.1.1 Location and Population Hangzhou is made of the following districts and counties: Shangcheng (上城), Xiacheng (下城), Jianggan (江幹), Gongshu (拱墅), Xihu (西湖), Binjiang (濱江), Xiaoshan (蕭山) and Yuhang (余杭), Jiande (建德), Fuyang (富陽) and Lin’an (臨安), Tonglu (桐廬) and Chun’an (淳安). Specifically, Qiandao Lake is located in Chun’an county to the South-west of Hangzhou city.
QIANDAO LAKE LOCATED WITHIN CHUN’AN COUNTY, HANGZHOU
Source: Google
Qiandao Lake was formed after the completion of the Xin’an River hydroelectric station when the construction of a dam created a man made lake. Currently, 1,078 large islands dot the lake and a few thousand smaller ones are scattered across it. The lake covers an area of 573 square kilometres (221 square miles) and has a storage capacity of 17.8 cubic kilometres. The islands in the lake cover about 86 square kilometers.
Without any treatment, water from Qiandao Lake is directly drinkable (according to the local government). Qiandao Lake is divided into five areas, central area, southeast area, northwest area, southwest area and northeast area. Among which, the central area and the southeast area have been developed (where the competitive set hotels are located).
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.1.2 Chun’an County Overview
Chun’an County is the biggest county at Zhejiang Province in terms of land area, covering a total land area of 4,427 square kilometers. Chun’an County lies in the west of Zhejiang province, with Hangzhou, Suzhou, Shanghai to the east and Anhui Province to the west. Within the boundary are scattered mountains and hills. The Xin’an River on the upper reach of Qiantang River crosses over the county through the national tourist zone. As of 2012, Chun’an has the population of 455,530.
CHUN’AN COUNTY ECONOMIC INDICATORS, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Registered Population (’000) 453.31 451.30 452.58 454.29 456.56 455.53 0% Growth % 0.1% -0.4% 0.3% 0.4% 0.5% -0.2% — GDP (RMB bn.) 8 9.27 10.33 11.75 14.03 15.92 15% Growth % 15% 11% 13% 11% 11% -13% — Fixed Asset Investment (RMB bn.) 4.41 5.33 6.09 7.47 7.95 9.70 17% Growth % 21% 20% 14% 22% 19% -22% — Retail Sales (RMB bn.) 2.00 2.41 2.78 3.28 3.92 4.60 18% Growth % 16% 21% 15% 19% 19% 17% — Urban Disposable Income (RMB) 15,091 16,646 18,144 19,831 22,238 24,811 10% Growth % 10% 10% 9% 9% 12% 12% — Utilized Foreign Investment (USD mil.) 78.43 82.97 119.44 121.57 143.47 137.59 12% Growth % 34% 6% 44% 2% 7% -4% —
Source: www.tjcn.org
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
QIANDAO LAKE’S LOCATION IN CHUN’AN COUNTY
Qiandao Lake Town
Source: Qiandao Lake government website
2.1.2.1 Chun’an Tourism Statistics
In 2012, Chun’an’s tourist arrivals reached 7.97 million people, representing an increase of 29 percent CAAG compared to the 2007. Growth in 2012 was especially fast as newly opened international hotels marketed their properties strongly. Tourism revenue was RMB 7.02 billion, up 23 percent CAAG over 2007. The following table shows historical foreign visitor arrivals and foreign exchange receipts for Chun’an from 2007 to 2012:
TOURISM ARRIVALS AND REVENUE OF CHUN’AN, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Tourism Arrivals (Million) 2.2 2.62 3.00 3.54 4.06 7.97 29% Revenue (RMB bn.) 2.51 3.07 3.81 4.54 5.31 7.02 23%
Source: Chun’an Statistics Bureau Note: It should be highlighted that, although the tourism statistics were sourced from Chun’an Statistics Bureau, the arrival figures in particular should be cautiously interpreted. This is because there could potentially be instances of multiple counting when total arrivals are calculated based on the total visitors to all the major attractions in the city.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.1.3 Qiandao Lake
Qiandao Lake Town is the capital town of Chun’an County, and has a population around 101,000. The town is spread over 356 square kilometres and hosts the largest national forest park in China. To attest to this fact, the China Central Government awarded Qiandao Lake Town the accolade of “International Garden City”.
2.1.3.1 Climate
Qiandao Lake’s whole year average temperature is 17 degree celsius. The hottest months are June and July, where temperatures can rise as high as 36 degree celsius. The best weather to visit Qiandao Lake are the months between September and November when the temperature hovers around 12 to 18 degree celsius. Furthermore, rainfall during this period is also low, unlike April and May (which also has pleasant temperatures). During winter, temperatures can fall to as low as minus 6 degrees. As a result, hotels in Qiandao Lake would have extremely low occupancy rates during the winter.
2.1.3.2 Transportation Infrastructure
Currently, the only way to travel to Qiandao Lake is via roads. The majority of guests visiting Qiandao Lake are from the cities of Hangzhou and Shanghai, with some Leisure guests visiting both Huangshan in Anhui and Qiandao Lake in a single trip. These are the estimated travelling distance and time required to travel from these catchment areas to Qiandao Lake:
TRAVELLING DISTANCE, TIME AND HIGHWAYS TO KEY CATCHMENT AREAS
Distance Time Highways Hangzhou city 180 km 2¾ hours G25/S32 Shanghai city 370 km 4½ hours G60/G25 Huangshan, Anhui 280 km 4 hours G3/G60/S33/S32
Source: Google Maps
During our interviews with hotel managers, it was brought to our attention that the greatest impediment to promoting Qiandao Lake as a destination is the long travelling time from catchment cities. As a result, sales managers strongly believe the market will truly pick up when the Hangzhou — Huangshan high-speed rail opens.
The construction of the high-speed rail has encountered much delay, especially since the Wenzhou incident as well as the overhaul of the Railway Ministry. As such, we are estimating construction of the high-speed to begin in 2013/2014, with an end completion date sometime in 2018. In particular, Qiandao Lake will have a dedicated stop called Chun’an Station. This station is located at the North-east part of Qiandao Lake, and it is expected that the opening of the high-speed rail will facilitate FIT travelers to the area to a large extent.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
HANGZHOU — HUANGSHAN HIGH SPEED RAIL (CHUN’AN STATION)
Source: Baidu Images
There are also plans to construct a new 79 kilometers long highway linking Huangshan to Qiandao Lake. When completed, this highway is expected to greatly increase traffic flow among tourists on the Hangzhou, Qiandao Lake and Huangshan 5A National Tourist Attractions belt. Specifically, travelling time from Chun’an County to Huangshan will be shortened from 4 hours now to just under an hour. The total cost for the highway construction is estimated to be RMB 6.9 Bn. Although there is no estimate to the completion date of this highway, it is expected to be completed ahead of the high-speed rail that is scheduled to open in 2018.
2.1.3.3 Tourism Overview
Qiandao Lake Town with its rich natural lake and mountain resources has become the gateway tourism destination of Chun’an County.
Qiandao Lake is famous for its myriad scenic and natural charms — from pristine forests, verdant hills, and unusual caves to diverse islands and tranquil waters. Qiandao Lake boat tour is among the most tourism attractions. Notable spots include Five Dragon Island, Strange Stone Island, Dragon Mountain Island, and Magic Dragon Island.
Qiandao Lake is also well-known for its an abundance of wildlife in the area, both on land and in the water, such as, Bird Island, Snake Island, and Monkey Island. Forest Oxygen Bar is another attraction that presents the region’s best forest vegetation, waterfalls, and colorful rocks. Mount Huang (Huangshan), as a UNESCO World Heritage Site, is also famous for its scenery, sunsets, granite peaks, and Huangshan pine trees.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.1.3.4 Qiandao Lake Development Plans
From 2006 to 2020, the Chun’an government plans to develop Qiandao Lake area into four function areas based on the current landscape and tourism resources, namely, Living Area, Entertainment Area, Lake Tourism Area, and Natural Tourism Area.
QIANDAO LAKE DEVELOPMENT PLAN
Source: Chun’an Government
Besides fully utilizing its existing resources, Qiandao Lake Town also developed some development zones to facilitate its economy:
• Pearl Island High-Tech Zone (珍珠半島高新技術園區) lies to the south of Qiandao Lake Town, with a planning area of 8.3 square kilometers. It will contain the Thousand Island Software Park and the Research Center of Qiandao Lake. Since the establishment of the park in February 2004, the zone focuses on researching and developing high-tech products.
• Nanshan Comprehensive Zone (南山綜合區塊), with a planning area of 12 square kilometers, is located to the south of Qiandao Lake Town. Since June1992, almost 100 enterprises have been established in the zone, including Nongfu Spring (農夫山泉), Rui Bloc (瑞年集團),New Waving (新興紡織), Weifun Electron (維方電子) etc.
• Gushan Industrial Zone (鼓山工業園區) covers an area of 2 square kilometers and is located at the eastern part of Qiandao Lake Town (approximately 3.8 kilometers from the town centre). Gushan Industrial Zone was started in 2003 with about 30 enterprises established in the zone such as Nd-Fe-B (釹鐵硼), King Architectural Marerialv (精惠建材), Greenrun Tea (綠潤制茶) and Tour Steamship (遊艇製造).
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.1.4 Conclusion
In conclusion, Qiandao Lake is likely to develop rapidly on the tourism front in the next five years. With the rapid expansion of hotel room count in the coming years, the market will have to adjust as supply increases. With increased marketing and publicity from these new hotel openings, the market is likely to benefit with more visitors who increasingly view the area as a prominent leisure destination. When the Hangzhou — Huangshan high-speed rail opens, demand is likely to increase rapidly.
2.2 QIANDAO LAKE HOTEL MARKET
2.2.1 Competitive Set
Therefore, this competitive market analysis is based on a study of 6 domestic and international hotels that best represent what would be considered as the top-tier competitive market in Qiandao Lake.
SELECTED COMPETITIVE SET, QIANDAO LAKE
Hualian (New)
Landison (New) ZTG Wenxindao
Anantara (New) New Century
Sheraton Hilton
Runhe Jianguo
InterContinental
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Official Star Opening No. Hotel Rating Year Room Count 1 New Century Resort Qiandao Lake Hangzhou 5 2004 227 2 Sheraton — 2010 250 3 ZTG Wenxindao — 2010 218 4 InterContinental — 2011 255 5 Hilton — 2011 349 6 Runhe Jianguo — 2012 302 Grand Total — — 1,601
Source: Google Maps
2.2.2 Historical Performance
HISTORICAL PERFORMANCE, COMPETITIVE MARKET, 2010-2012
Room Nights Room Night Occupancy ADR RevPAR Available Demand % (RMB) (RMB) 2010 189,800 — 83,821 — 44% — 786 — 347 — 2011 371,205 96% 163,493 95% 44% 0% 782 -1% 345 -1% 2012 584,365 57% 261,775 60% 45% 1% 745 -5% 334 -3% CAAG 75% — 77% — 1% — -3% — -2% —
Note: Annual change in occupancy is in percentage point basis.
• The top-tier hotel market in Qiandao Lake has been undergoing a rapid period of growth both in terms of RNA and RND. This is because Qiandao Lake is currently undergoing a rapid period of growth.
• Opening of three international properties in the past 3 years increased the appeal and visibility of Qiandao Lake. There was increased awareness of Qiandao Lake as a leisure destination, which translated into a rapid rise in room nights demand. Despite a 75 percent growth in room nights available from 2010 to 2012, room nights demand managed to outgrow supply by 2 percentage points.
• Market wide occupancy has been stagnant, fluctuating between 44 and 45 percent. For a resort market with strong seasonality, low occupancy rates such as these are not uncommon in China.
• A large room count growth in the market (approximately 75 percent per annum over the past three years) resulted in increased competition that resulted in the overall market ADR to fall.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Because occupancy remained relatively stable, whereas ADR fell, RevPAR decreased by 2 percent CAAG over the period 2010 to 2012.
2.2.3 Demand Segmentation
DEMAND SEGMENTATION, COMPETITIVE MARKET, 2012
2.2.3.1 Leisure Demand Segment
• Almost all of the FIT travelers (35 percent) in the market were Leisure guests. Together with the Leisure Groups that contributed 21 percent of total demand in 2011, the Leisure demand segment contributed approximately half of total demand in the market in 2012.
• Leisure was the greatest source of demand generator in Qiandao Lake because of the abundance of natural resources in Qiandao Lake and from the resort positioning of the hotels located there. Unlike many lakes surrounding the YRD that have been polluted due to the quick urbanisation and industrialisation of the area, much effort has been put in place to ensure that Qiandao Lake remains pristine. This is because it serves as the reservoir for Hangzhou city and surrounding areas.
• In 2012, approximately 145,000 room nights demand were from this demand segment, with approximately 60 percent of Leisure guest travelling to Qiandao Lake doing so via self-drive from a neighbouring city.
• Because of its pristine natural beauty, Qiandao Lake truly has potential to be a leading tourism destination in YRD, if not the whole of China. However, the main obstacle to achieving this is transportation infrastructure. Most of the travelers to Qiandao Lake come from Hangzhou and Shanghai. Travelling time between these cities currently stand at 2 to 3 hours. With the opening of the Hangzhou-Huangshan high-speed rail in 2018 (estimated) that is expected to halve travelling time from these cities to Qiandao Lake, we are confident Leisure FIT guest would grow rapidly.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.2.3.2 MICE Demand Segment
• The second largest demand generator of room nights in Qiandao Lake is MICE demand. Because the market is still in its initial phase of growth, it has to rely on attracting MICE groups to fill the rooms. This is especially true since the growth in room nights available in the market was 96 percent and 57 percent in 2011 and 2012 respectively.
• Since Qiandao Lake has excellent conditions for tourism, it is not surprising that a large proportion of meetings are actually incentive meetings, with a tourism component to it. Holding a MICE event in Qiandao Lake would also be at a huge discount over holding a similar meeting in Hangzhou or Shanghai. In 2012, just under 100,000 room nights demand came from this segment.
• Meetings demand is likely to remain a main demand contributor while the market tries to establish itself as a pre-eminent tourism destination. This is because meeting groups are more likely to be willing to travel 2 to 3 hours from neighbouring cities for a decently priced hotel set within a relaxing environment.
• Although MICE groups would typically lower the ADR of a hotel, it benefits hotels by boosting occupancy levels as well as food and beverage revenues. When the leisure market matures within 5 years, the percentage of meetings demand is likely to drop a little.
2.2.3.3 Corporate Demand Segment
• The smallest demand generator in the market is corporate demand, contributing just 7 percent of total demand in 2012 (approximately 17,000 occupied room nights).
• As Qiandao Lake is not a major business city, nor has plans to be one, it is unlikely that corporate demand would grow at a fast pace going forward. On the contrary, the contribution of corporate demand to total demand is likely to drop in the future as Qiandao Lake establishes itself as a pre-eminent tourism destination within the YRD.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.2.4 Nationality Mix
NATIONALITY MIX, COMPETITIVE MARKET, 2012
Note: Hong Kong, Macau and Taiwan are included under Asia.
On the whole, Qiandao Lake is still a domestically driven market. Without its own airport, international guests would first have to fly to Hangzhou Xiaoshan International Airport before
taking a 21⁄2-hour car ride to Qiandao Lake. Similarly, most of the domestic guests are from the metropolitan areas of Hangzhou and Shanghai. With the new high-speed rail linking Hangzhou and Huangshan in Anhui Province (with a planned station at Qiandao Lake) opening in 2018, we believe more international guests visiting Shanghai and Hangzhou would consider Qiandao Lake as a destination.
2.2.5 Seasonality
MONTHLY SEASONALITY TREND, COMPETITIVE SET, 2011
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Due to the fact that the hotels in Qiandao Lake are resorts catering to Leisure and MICE guests instead of corporate guests, there is marked seasonality in the market. The peak months are between April and October when the weather is pleasant and swimming in the lake is possible. Specifically, the weeklong holidays in April and October are the busiest periods in the year, together with the school summer holiday periods of July and August.
2.2.6 Additions To Supply
SUPPLY ADDITIONS, COMPETITIVE MARKET
Hotel District Opening Year Room Count Anantara See Map Second half 120 of 2014 Landison See Map 2014 250 Hualian Integrated Resort See Map 2015-2019 750
Note: Map of current hotels and new supply hotels are located in Section 2.2.1.
QIANDAO LAKE UPPER-TIER HOTELS, ESTIMATED NEW SUPPLY, 2013-2018
2013 2014 2015 2016 2017 2018 New Supply: Anantara Resort 60 60 Landison Hotel 250 Hualian Integrated Resort 150 150 150 150 New Supply for the Year 0 310 210 150 150 150 Total Market Supply 1,601 1,911 2,121 2,271 2,421 2,571 % Change 0% 19% 11% 7% 7% 6%
Note: We have decided to include an additional year of projection for Qiandao Lake due to a major development in the market (2018 is the projected year the high speed rail becomes operational).
Note: Please note that this list is not intended to disclose all known and possible hotel additions to the competitive market in the future but highlights the most likely projects to be completed. It should also be noted that many projects may often fall behind the scheduled opening dates, or may even cease due to myriad factors, such as an inability to secure financing.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.2.7 Competitive Market Outlook
2.2.7.1 Market Occupancy Outlook
SUMMARY OF OPPORTUNITIES & CHALLENGES
OPPORTUNITIES CHALLENGES
• The greatest boost to tourism in Qiandao • Forecasted large room supply increase in Lake is the projected opening of the the next five years is expected to exert Huang-Hang high-speed rail connecting some pressure on achievable occupancies Hangzhou to Huangshan. and rates. • The majority of visitors to Qiandao Lake • Strong seasonality in the market is likely currently come from Hangzhou and to always place a constraint on average Shanghai. With the opening of the line, annual occupancy. transport time between these cities and • With the opening of the high-speed rail, Qiandao Lake is expected to be halved, there is also fear that more visitors would thereby enticing more visitors. make day trips to Qiandao Lake, instead of • Visitors to the neighbouring Huangshan staying over. Mountains in Anhui would consider • Protecting the pristine state of Qiandao Qiandao Lake as a secondary destination if Lake requires concerted efforts from there is increased connectivity due to the citizens and government authorities. This high-speed rail. is especially difficult since water from • With three new international branded Qiandao Lake originates from hotels opening in the past three years, the neighbouring Anhui Province, where the area is just beginning to become a better Zhejiang government has little control recognised tourist attraction (due to the over. publicity). • In the short term, there is likely to be a • The hot-spring located 40 minutes from decline in MICE demand due to temporary New Century Resort Qiandao Lake cancellation or/and downsize of many Hangzhou would entice some guests to government MICE events after the 18th visit Qiandao Lake during the winter National Congress of the Communist Party months. of China. This would have a large impact on Qiandao Lake since it has a large MICE demand base.
ESTIMATED OCCUPANCY PROJECTIONS, COMPETITIVE MARKET, 2012-2018
Room Night Room Night Available % Change Demand % Change Occupancy 2012 584,365 — 261,775 — 45% 2013 584,365 0% 284,018 8% 49% 2014 697,515 19% 322,704 14% 46% 2015 774,165 11% 361,274 12% 47% 2016 828,915 7% 392,192 9% 47% 2017 883,665 7% 425,817 9% 48% 2018 938,415 6% 495,305 16% 53% CAAG 8% — 11% — 3%
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.2.7.2 Market ADR Outlook
• Among the five hotels in the competitive set, only New Century Resort Qiandao Lake Hangzhou has been in the market for five years. All other hotels opened in or after 2010. With a Room Nights Available growth of 129 percent, 96 percent and 57 percent for years 2010 to 2012, the market had pressure to compete on price.
• In the past three years, all three international branded hotels experienced a drop in their ADR. New entrants would often have to discount rates during their first years of operation to compete in the market. The fact that so many new hotels opened in a short period of time resulted in a drop in market wide ADR.
• As a result, market wide ADR shrunk by approximately 3 percent year on year between 2010 and 2012.
• Because Qiandao Lake is currently undergoing a rapid growth phase, Room Nights Available is expected to continue to grow quickly between 2014 and 2016.
• Going forward, we would expect ADR to remain stagnant between 2014 and 2017. Following which, a potential strong growth in 2018 is expected due to the influx of FIT tourists travelling on the High-Speed railway that links Hangzhou to Huangshan.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
2.3 NEW CENTURY RESORT QIANDAO LAKE HANGZHOU — SWOT ANALYSIS SWOT ANALYSIS, NEW CENTURY RESORT QIANDAO LAKE HANGZHOU
STRENGTHS WEAKNESSES
• Affiliated to an established and • To keep up with new branded hotels that well-known domestic brand. have entered the market, New Century Resort Qiandao Lake would have to • New Century Resort Qiandao Lake consider having a major refurbishment Hangzhou is the only resort in the market within the next 5 years. that successfully caters to both Leisure guests and Corporate guests. It is able to • New Century Resort Qiandao Lake do so because of its unique location, set Hangzhou’s standard rooms, at 32 square close to the city centre and yet on a private metres, are relatively small for a resort. peninsula which offers Leisure guests This is in comparison with the market privacy. This competitive strength is hard average at 44 square metres. to replicate. • New Century Resort Qiandao Lake • New Century Resort Qiandao Lake Hangzhou is the only resort in the Hangzhou is the only resort that has a night competitive set with three-fixture view of the city lights. bathrooms. • New Century manages another 4 star resort in Qiandao Lake. Therefore, these two hotels have opportunities to cooperate and benefit from cross-selling. • Being the first resort to enter the market in 2004, New Century Resort Qiandao Lake Hangzhou has built up a firm reputation in the market. Established relationships should continue to support the Hotel’s business to some extent despite new entrants entering the market. • The Hotel has a relatively large Chinese restaurant with 15 private dining rooms (the second largest in the market). The Hotel has chosen to focus on Chinese cuisine because the majority of guests are domestic travelers. • New Century Resort Qiandao Lake Hangzhou’s ballroom is slightly larger than the market average. It also has 9 function rooms, resulting in the Hotel possessing the largest total function area in the market. • New Century Resort Qiandao Lake Hangzhou has the highest RevPAR in the market due to its reputation and the good base of regular guests. It also has the highest occupancy rates in the market. • New Century Resort Qiandao Lake Hangzhou is a leader in the Chinese restaurant and Banquets market in Qiandao Lake.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
OPPORTUNITES THREATS
• High-speed rail connecting Hangzhou to • Protecting the pristine state of Qiandao Huangshan, with a stop at Qiandao Lake, is Lake requires concerted efforts from expected to increase tourism visitors to the citizens and government authorities. This region, benefitting all hotels including is especially difficult since water from New Century Resort Qiandao Lake Qiandao Lake originates from Hangzhou. neighbouring Anhui Province, and is thus not under the control of the Zhejiang • Previously, New Century Resort Qiandao government. Lake Hangzhou was the only top-tier resort in the market. Therefore, all the publicity and marketing efforts came from New Century Resort Qiandao Lake. With three new international branded hotels opening in the past three years, marketing efforts can be coordinated to better promote the area. • The Yu Hot-spring located 40 minutes from New Century Resort Qiandao Lake Hangzhou could be a selling point for guests to visit Qiandao Lake during the winter off-peak months.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3 NINGBO MARKET
3.1 NINGBO OVERVIEW
3.1.1 General Information
Ningbo, a sub-provincial, coastal city, is located at the southern wing of the Yangtze River Delta, separated from Shanghai by the Hangzhou Bay to the north and borders Zhoushan to the east. It has a total land area of 9,817 square kilometres, of which the city area occupies around 2,462 square kilometres, as well as a generous mainland coastal line of 788 kilometres. The registered population of Ningbo totalled around 5.8 million in 2012.
LOCATION OF NINGBO IN ZHEJIANG PROVINCE
Source: Google Maps
Ningbo has direct jurisdiction over six urban districts, three county-level cities and two counties. At present, Haishu District remains to be the core of the city with the largest concentration of administrative, commercial and cultural activities.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
NINGBO ADMINISTRATIVE DIVISIONS
Source: Online Stock Photos
Ningbo experiences a generally mild, subtropical monsoonal climate with four distinctive seasons and an average temperature of around 16 degrees Celsius. Average rainfall is approximately 1,480 millimetres and is largely concentrated between the months of May and September.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.1.2 Economic Overview
3.1.2.1 Economic Indicators
ECONOMIC INDICATORS, NINGBO, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Registered Population (‘000) 5,646 5,681 5,710 5,741 5,764 5,777 0.5% % Growth 1% 1% 1% 1% 0.4% 0.23% — GDP (RMB bn.) 343 396 421 513 601 652 14% Growth % 20% 15% 6% 22% 17% 8% — Fixed Asset Investment (RMB bn.) 160 173 200 221 239 290 13% Growth % 4% 8% 16% 11% 8% 21% — Retail Sales (RMB bn.) 104 124 143 170 202 233 18% Growth % 18% 19% 15% 19% 18% 15% — Urban Disposable Income (RMB) 22,307 25,304 27,368 30,166 34,058 37,920 11% Growth % 13% 13% 8% 10% 13% 11% — Utilized Foreign Investment (USD mil.) 2,505 2,540 2,210 2,320 2,810 2,850 3% Growth % 3% 1% -13% 5% 21% 1% — Total Import Value (USD mil.) 18,244 21,510 22,160 30,930 37,360 35,130 14% Growth % 36% 18% 3% 40% 21% (6%) — Total Export Value (USD mil.) 38,255 46,330 38,650 51,970 60,830 61,440 10% Growth % 33% 21% -17% 34% 17% 1% —
Source: Bulletin of Statistics of National Economy and Social Development of Ningbo (2006 — 2012)
• Continuous GDP growth: GDP showed robust growth despite the global economic downturn in recent years as it rose at a CAAG rate of 14 percent between 2007 and 2012, from RMB 343 billion to RMB 652 billion.
• High proportion of private enterprises: With an early adoption of a market-driven economy Ningbo has a high proportion of private enterprises in comparison to state-owned enterprises.
• Growth in fixed asset investment: This indicator showed an uptrend with a CAAG rate of 13 percent over the past five years.
• High urban disposable income: Urban disposable income grew continuously at a CAAG rate of 11 percent to RMB 37,920 in 2012.
• Increasing retail sales: Retail sales, together with the constant growth in urban disposable incomes, increased at a CAAG rate of 18 percent, from RMB 104 billion in 2007 to RMB 233 billion in 2012.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Foreign investment trend: Like most other cities in China and the rest of the world, foreign investment in Ningbo was dramatically impacted by the global economic crisis in 2009 as utilized foreign investment fell by 13 percent. Nevertheless, this indicator showed quick recovery in 2010 and continued to increase in 2012, totalling at USD 2,850 million. • Sources of foreign investment: With a focus on pillar industries such as machinery, garments, petrochemicals, electronics and transportation equipment manufacturing, Ningbo has been very successful in attracting foreign investments. Major sources of foreign investment include Hong Kong, Japan, Europe and the United States. Renowned multinational corporations that have significant investments in Ningbo include Esso, Xerox, Metro, LG and Samsung. • Imports & Exports: Although the total export value in 2009 fell by 17 percent due to the global economic crisis, it showed a quick rebound with a significant growth of 34 percent in 2010. Overall, Ningbo has maintained its position as an important export base in the Yangtze River Delta, and between 2007 and 2012, both import and export values presented strong CAAG growths of 14 percent and 10 percent respectively. 3.1.2.2 Development Zones MAP OF DEVELOPMENT ZONES IN GREATER NINGBO
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Source: www.ningbochina.com
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
ECONOMIC AND TECHNOLOGY DEVELOPMENT AREAS, GREATER NINGBO
No. on Map Development Zone Name Level Location 1 Ningbo Economic & Technological State Beilun Development Zone 2 Ningbo Free Trade Zone State Beilun 3 Ningbo National High-Tech State Jiangdong Development Zone 4 Daxie Development Area State Daxie 5 Cixi Economic Development Area State Cixi 6 Yuyao Economic Development Area Provincial Yuyao 7 Fenghua Economic Development Area Provincial Fenghua 8 Ninghai Economic Development Area Provincial Ninghai 9 Jiangdong City Functional Development Provincial Jiangdong Area 10 Xiangshan Economic Development Area Provincial Xiangshan 11 Zhenhai Economic Development Zone Provincial Zhenhai 12 Jiangbei Development Area Provincial Jiangbei 13 Yinzhou Development Area Provincial Yinzhou 14 Meishan Island Development Area Provincial Meishan Island 15 Dongqian Lake Tourism Area Specialized Yinzhou
Source: Ningbo Foreign Investment Development Board
DESCRIPTION OF MAJOR DEVELOPMENT ZONES IN NINGBO
Zone Highlights NETDZ Ningbo Economic & Technological Development Zone: • Established in 1984 • Attracted multinational enterprises and high-tech companies such as Esso, Dow Chemical, Mitsubishi Itochu, Sumitomo and Samsung. • By the end of June 2009, this zone had more than 1,416 foreign-funded enterprises with a total investment of USD 23 billion.
NFTZ Ningbo Free Trade Zone: • In 1992, it was approved by the central government as the sole free trade zone in Zhejiang Province. • The Zhejiang Ningbo Export Processing Zone, approved in 2002, has also created an opportunity for tax-free processing and efficient customs clearance. • 2011 Gross Industrial Output — RMB 54 billion • 2011 Total Imports — USD 5 billion • 2011 Total Exports — USD 10 billion
NNHTDZ Ningbo National High-Tech Development Zone • Focuses on research and development, and technological innovation • Central location near to the Eastern New Town • Pillar industries — semiconductor and opto-electrical industry, electronic information industry, and new material cum energy industry • 2010 (latest information available) — GDP of RMB 13.6 billion
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.1.3 Transportation Infrastructure
3.1.3.1 Airport
Ningbo Lishe International Airport is situated in Yinzhou District, which is 15 kilometres southwest of the city centre. It has currently opened a total of 47 flight routes, linking with major cities in China such as Beijing, Guangzhou, Shenzhen, Chengdu, as well as international destinations including Hong Kong, Macau, Seoul, Taipei and Singapore.
AIRPORT STATISTICS, NINGBO LISHE INTERNATIONAL AIRPORT, 2007-2012
Passenger No. of Cargo Arrivals % Change Flights % Change (tons) % Change 2007 3,300,626 — 31,541 — 39,643 — 2008 3,574,352 8% 34,002 8% 39,769 0.3% 2009 4,031,447 13% 37,512 10% 46,840 18% 2010 4,517,070 12% 39,289 5% 55,967 19% 2011 5,014,002 11% 44,083 12% 58,763 5% 2012 5,266,738 5% 44,924 2% 61,662 5% CAAG 10% — 7% — 9% —
Source: China Aviation Administration
3.1.3.2 Railway
• The two major railway stations are Ningbo Railway Station and Ningbo East Railway Station. Ningbo Railway Station in Haishu District underwent expansion and redevelopment in 2010, and it remains as the main station of the city. Ningbo East Railway Station, formerly a cargo station, was reconstructed and opened to the public as a secondary passenger railway station in September 2010.
• Ningbo is currently connected to the national train network via the Yong-Tai-Wen Railway Line (甬台溫鐵路線) and Xiao-Yong Railway Line (蕭甬鐵路線). Other sub lines include the Beilun Line (北侖線), Hongzhen Line (洪鎮線), Yuci Line (余慈線) and Baisha Line (白沙線).
• Continuous improvements are made to expand the city’s railway network in order to be even more accessible in China. For instance, the upcoming addition of the Hangzhou-Ningbo High Speed Railway Line, which is a portion of the Hangzhou-Fuzhou-Shenzhen High Speed Railway Line, is slated to complete during the first half of 2013. Spanning at 150 kilometres with a designed speed of 350 kilometres per hour, the travelling time between these two cities would be shortened from two hours to thirty minutes. Moreover, the future Hu-Gang High Speed Railway Line, with a total length of 1,300 kilometres, would stretch
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
from Hong Kong to Shanghai and pass through major cities including Ningbo, Shenzhen, Xiamen, Fuzhou and Hangzhou. Expected to open in 2014, this line would considerably reduce the travelling time between Hong Kong and Shanghai to around three and a half hours.
3.1.3.3 Subway
Approved in December 2008, a subway system comprising of six lines is also underway. At present, construction of two subway lines, Line 1 and Line 2, have already begun and are both scheduled to complete in 2015.
PLANNED NINGBO SUBWAY NETWORK
Source: http://cmspub.cnnb.com.cn/
3.1.3.4 Highway & Bridges
HIGHWAY
The city has an extensive road transportation network that is well integrated with the rest of China. Major highways passing by Ningbo include, but are not limited, to the following:
• Raocheng Highway (繞城高速): Effectively linked to major highways and state roads such as Xiangshan Highway, Hangyong Highway, Yongjin Highway and Yong-Tai-Wen Highway, Raocheng Highway enables Ningbo to be connected with nearby cities including Shanghai, Hangzhou, Jiaxing and Taizhou.
• South Huancheng Road and North Waihuan Expressway are two future road links in Ningbo that are slated to complete by 2013. These two roads, both running in an east-west direction, would be linked with the existing Century Avenue and Airport Expressway.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
BRIDGES
Moreover, the two notable bridges in Ningbo are — the Hangzhou Bay Bridge and Zhoushan Bridge. The 36-kilometre Hangzhou Bay Bridge, completed in 2007, is currently the longest trans-sea bridge in the world, stretching from Haiyan in Jiaxing to Cixi in Ningbo. The driving time between Shanghai and Ningbo has thus been drastically reduced, from approximately four to two and a half hours. The Zhoushan Bridge, which is made up of five individual bridges, one of which connects to North Yanhai Highway in Ningbo, has also significantly improved accessibility between Ningbo and Putuo Mountain, with a shortened travelling time of around an hour and a half.
HANGZHOU BAY BRIDGE
Source: Online Stock Photos
3.1.3.5 Port
Beilun Port is at the entrance of Yangtze River and approximately 30 kilometres from Ningbo’s city centre. As the second largest port in China since 1998, it boasts a total of 27 deep-water berths and more than 140 domestic and international container routes. As of the end of December 2012, the port achieved a total cargo throughput of 16,927,900 tons and a passenger volume of 1.64 million people.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.1.4 Tourism Overview
3.1.4.1 Major Attractions
MAP OF MAJOR ATTRACTIONS IN/NEAR NINGBO
4 1 2
3
Attraction 1 Hemudu Culture Relics 河姆渡遺址 2 Baoguo Temple 保國寺 3 Dongqian Lake Scenic Area 東錢湖風景區 4 Putuo Mountain (in Zhoushan) 普陀山（舟山）
Source: Google Maps
Ningbo has traditionally been a popular transit stop for leisure travelers en route to Putuo Mountain in Zhoushan. Overall, regardless of the range of tourist attractions available, Ningbo’s tourism industry is mainly sustained by corporate and MICE rather than the leisure segment.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.1.4.2 Tourism Statistics
TOURISM STATISTICS, NINGBO, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG
Domestic Visitor Arrivals (’000s) 30,740 34,650 39,620 46,240 51,808 57,483 13% International Visitor Arrivals 689,000 787,000 801,000 952,000 1,074,000 1,162,000 11% Tourism Foreign Exchange Rev (US mil.) 430 490 490 590 650 730 11% Total Tourism Rev (RMB mil.) 38,020 45,020 53,050 65,080 75,130 86,280 18%
Source: Bulletin of Statistics of National Economy and Social Development of Ningbo (2007 — 2012)
PROPORTION OF DOMESTIC VS. INTERNATIONAL VISITOR ARRIVALS, NINGBO, 2007-2012
2007 2008 2009 2010 2011 2012 Domestic Arrivals 98% 98% 98% 98% 98% 98% International Arrivals 2% 2% 2% 2% 2% 2%
Source: Bulletin of Statistics of National Economy and Social Development of Ningbo (2007 — 2012)
Note: It should be highlighted that, though the tourism statistics presented above are extracted from the official government database, these figures should be cautiously interpreted as there can be instances of multiple counting when total domestic arrivals are calculated based on total visitors to all major attractions in the city.
3.1.5 Conclusion
In conclusion, Ningbo has experienced positive economic growth and constant infrastructural improvements over the past decade. Compared with other manufacturing and trade-driven cities in the Yangtze River Delta region, Ningbo’s economy was not as badly impacted by the global economic slowdown in 2008 and 2009.
Going forward, there is positive prospect in Ningbo’s future development given its well-established investment base, strong growth in the leading industries, as well as the continuous investment in infrastructure. In terms of visitors, considering that Ningbo mainly relies on business tourism, the anticipated economic growth of the city should in turn generate an increasing volume of business and MICE travelers.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2 NINGBO HOTEL MARKET 3.2.1 Competitive Set
Therefore, this competitive market analysis is based on a study of 13 domestic and international hotels that best represent what would be considered as the top-tier competitive market in Ningbo.
SELECTED COMPETITIVE SET, NINGBO
Hotel Star Rating Opening Year Room Count Yinzhou District: 1 New Century Grand Hotel Ningbo 5-Star 2008 392 2 Sofitel Wanda 5-Star 2009 290 3 Nanyuan Universe 5-Star 2010 400 Subtotal 1,082 City Centre: 4 Nanyuan Hotel 5-Star 1990 438 5 Crowne Plaza City Centre 5-Star 2000 435 6 Sheraton 5-Star 2005 380 7 Howard Johnson Plaza 5-Star 2006 450 8 Marriott 5-Star 2008 333 9 Shangri-La 5-Star 2009 563 10 Westin 5-Star 2012 310 11 Howard Johnson Sunshine Plaza 5-Star August,2012 443 Subtotal 3,352 Eastern New Town: 12 Howard Johnson IFC 5-Star June,2012 222 13 Pan Pacific 5-Star July,2012 415 Subtotal 637 Grand Total — — 5,071
Source: Google Maps
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.2 Historical Performance
3.2.2.1 Overall Competitive Market
HISTORICAL PERFORMANCE, COMPETITIVE MARKET, 2010-2012
Room Nights Room Night ADR RevPAR Available Demand Occupancy % (RMB) (RMB) 2010 1,208,150 — 693,825 — 57% — 608 — 349 — 2011 1,213,990 1% 753,957 9% 62% 5% 628 3% 390 12% 2012 1,591,176 31% 883,744 17% 56% -6% 635 1% 353 -9% CAAG 15% — 13% — -1% — 2% — 1% —
Note: Annual change in occupancy is in percentage point basis.
• Market oversupply: 2011 was a year which had a temporary halt in new supply; however, given Ningbo’s strategic coastal location and economic potential which have in turn spurred hotel investments in the city, in 2012, the competitive market was again faced with the problem of an oversupply as room nights available rose by 31 percent with a large influx of new, internationally branded properties, namely the Westin, Pan Pacific, Howard Johnson IFC Plaza and Howard Johnson Sunshine Plaza.
• Continuous growth in demand: At the same time, market demand remained strong with a CAAG rate of 13 percent as a result of a constant progression and development of the city, particularly in the gradual maturity of the development zones, ports, Yinzhou district and Eastern New Town, which have stimulated corporate and MICE activities in Ningbo.
• Large fluctuations in market occupancy: In 2011, market occupancy rose strongly by 5 percentage points to 62 percent as the growth in market demand surpassed that of supply. However, in 2012, faced with stiff competition that was triggered by an oversupply, coupled with a slower rate of growth in market demand, market occupancy dipped by 6 percentage points to 56 percent.
• Slow ADR growth: ADR constantly grew at a slow pace from RMB 608 in 2010 to RMB 635 despite the current market competition which has caused many hotels to struggle with maintaining their rates.
• Decline in RevPAR in 2012: Market RevPAR was 9 percent lower in 2012 as the rate of decline in occupancy that year exceeded the marginal growth of 1 percent in ADR.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.2.2 Historical Performance by District
HISTORICAL OCCUPANCY PERFORMANCE BY DISTRICT, 2010-2012
2010 2011 2012 Yinzhou District 53% 62% 62% City Centre 59% 62% 56% Eastern New Town — — 27% Competitive Average 57% 62% 56%
• Yinzhou District’s overall occupancy performance was essentially not affected by the recent market oversupply situation as all the new supply additions are either in the city centre or Eastern New Town, which is at least 20 minutes away by car. Together with the district’s growing economic profile, constant infrastructural improvements, gradual maturity of the economic zones, and a more vibrant commercial atmosphere due to an increasing inflow of enterprises, the district’s average occupancy rose swiftly by 9 percentage points from 53 percent in 2010 to 62 percent in 2011 and 2012.
• Looking at the city centre subset, in 2011, growing demand and the temporal absence in new supply helped push up the occupancy by 3 percentage points to 62 percent. However, in 2012, the intensified market competition following the opening of the Westin and Howard Johnson Sunshine Plaza, which increased supply by over 700 rooms, led to a 6 percentage point drop in occupancy to 56 percent.
• The Eastern New Town, a newly developed commercial district that is still in its infancy, has an immature hotel submarket since the first two properties, Howard Johnson IFC and Pan Pacific, opened only in the second half of 2012. As such, this subset only achieved an average occupancy of 27 percent in 2012.
HISTORICAL ADR PERFORMANCE BY DISTRICT, 2010-2012
2010 2011 2012 Yinzhou District 569 635 675 City Centre 620 625 628 Eastern New Town — — 470 Competitive Average 608 628 635
• With a strong CAAG rate of 9 percent between 2010 and 2012, Yinzhou District was the best performing subset with an ADR of RMB 675 in 2012, or 7 percent higher than the ADR achieved by the city centre subset.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
HISTORICAL REVPAR PERFORMANCE BY DISTRICT, 2010-2012
2010 2011 2012 Yinzhou District 299 395 418 City Centre 368 388 352 Eastern New Town — — 128 Competitive Average 349 390 353
3.2.3 Demand Segmentation Dynamics
DEMAND SEGMENTATION, COMPETITIVE MARKET, 2012
3.2.3.1 Corporate Demand Segment
• The majority are middle-management corporate travelers visiting their companies’ operations in Ningbo, individual manufacturers, sales personnel as well as engineers.
• Ningbo, as one of the major economic centres in Zhejiang Province, is also regarded as an important base city for corporations intending to conduct business in this region. Therefore, not only has there been a steady growth in the city’s commercial market, particularly in the logistics, electronics, trading, and transport machinery manufacturing sectors, the competitive market has also witnessed a boost in corporate room night demand over the years.
• Companies with a local presence in the city centre, surrounding industrial zones, and neighbouring towns such as Cixi and Beilun, generate relatively significant corporate demand for the competitive market.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Moreover, business partners of small local trading companies and walk-in guests are also other sources of corporate demand.
• The presence of large corporate accounts remains fairly limited albeit the existence of numerous large corporations such as Geely Automobile Manufacture Base Ningbo, SINOPEC Zhenhai Refining & Chemical Company, Ningbo LG Yongxing Chemical Co., Ltd, and Akzo Nobel Chemicals Ningbo Co., Ltd.
• The rapid addition of new, internationally branded, top-tier properties has stirred stiff competition and a downslide in corporate negotiated rates across the market in recent years.
• The average length of stay ranges between one and two nights.
3.2.3.2 MICE Demand Segment
• The current MICE market mainly comprises of in-house meetings, both corporate and government. Very limited demand is derived from incentive groups as Ningbo lacks tourism resources and pales in distinctiveness in comparison to its neighbouring city, Hangzhou.
• Government in-house meetings usually include receptions, banquets and, government hosted meetings and events.
• The main feeder markets are surrounding cities in the YRD region.
• The government’s conscious efforts to promote Ningbo as a MICE destination, such as developing the Ningbo International Convention Centre, destination marketing at tourism fairs and attracting large-scale events and expositions, have partially contributed to the growth in the overall MICE market.
• Ningbo has successfully hosted numerous large national events and exhibitions in the past, such as the 65th China Automobile Parts Fair, annual Ningbo International Fashion Festival, Zhejiang Investment & Trade Symposium, China International Consumer Goods Fair etc.
• The typical average length of stay is around 2 nights.
3.2.3.3 Leisure Demand Segment
• Given Ningbo’s scarce tourism resources and economic reliance on trading and manufacturing, leisure demand is not a key demand generator in the city in the city, unlike its neighbours such as Shanghai and Hangzhou.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• The bulk of the leisure demand is generated from nearby cities in the YRD region.
• Longer haul, domestic leisure travelers from non-YRD cities, such as Guangzhou and Beijing, traditionally view Ningbo as a transit point en route to Putuo Mountain and they would normally only stay for a night in Ningbo, if at all.
• The improved road infrastructure in the YRD region, or China as a whole, has also created a growing trend in weekend drive-in leisure demand to Ningbo, the majority of which are individual travelers from nearby cities. The typical itinerary of these travelers includes shopping, dining and social entertainment activities, and they tend to stay between one and two nights during the weekends.
• Leisure group demand is viewed by many competitive properties as a segment that can help to supplement corporate demand during the week, fill demand gaps in low periods, as well as utilize the twin rooms more effectively.
3.2.3.4 Other Demand Segment
• This demand segment of the competitive market mainly refers to extended-stay guests and government FIT demand.
• Long-stay demand is largely derived from companies that are located in the development zones.
3.2.4 Nationality
NATIONALITY MIX, COMPETITIVE MARKET, 2012
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.5 Seasonality
MONTHLY SEASONALITY TREND, COMPETITIVE MARKET, 2011
The competitive market experiences fairly mild monthly fluctuations in occupancy given it being a predominantly corporate-oriented market. That being said, minor peaks usually occur between May and July, as well as October and November, during which annual international exhibitions, such as the Zhejiang Investment & Trade Symposium, International Consumer Goods Fair and Ningbo International Fashion Festival are held. Following on, minor dips in occupancy can be observed between August and September, which typically coincide with the summer holiday season, while the winter period stretching from December to February is normally the low season.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.6 Additions to Supply
SUPPLY ADDITIONS, COMPETITIVE MARKET
In Map Hotel District Opening Year Room Count A InterContinental Eastern New Town Second half of 2013 467 B Landison Eastern New Town 4th quarter of 2013 400 C Langham Place Eastern New Town 2014 140 D Courtyard Yinzhou 2014 256 E Novotel Eastern New Town Second half of 2014 250 F Four Seasons Eastern New Town Second half of 2016 220
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Existing Supply 1 New Century Grand Hotel Ningbo 2 Sofitel Wanda 3 Nanyuan Universe 4 Nanyuan Hotel 5 Crowne Plaza City Centre 6 Sheraton 7 Howard Johnson Plaza 8 Marriott 9 Shangri-La 10 Westin 11 Howard Johnson Sunshine Plaza 12 Howard Johnson IFC 13 Pan Pacific
Source: Google Maps
ESTIMATED ROOM SUPPLY, COMPETITIVE MARKET, 2013-2017
2013 2014 2015 2016 2017 New Supply: InterContinental 234 233 Landison 101 299 Langham Place 140 Courtyard Yinzhou 256 Novotel 125 125 Four Seasons 110 110 New Supply for the Year 335 1,053 125 110 110 Total Market Supply 5,406 6,459 6,584 6,694 6,804 % Change 24% 19% 2% 2% 2%
Please note that this list is not intended to disclose all known and possible hotel additions to the competitive market in the future but highlights the most likely projects to be completed. It should also be noted that many projects may often fall behind the scheduled opening dates, or may even cease due to a myriad factors, such as failing to secure financing.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.7 Competitive Hotel Market Outlook
3.2.7.1 Market Occupancy Outlook
SUMMARY OF OPPORTUNITIES & CHALLENGES, COMPETITIVE MARKET
OPPORTUNITIES CHALLENGES
• Optimistic economic outlook, such as • Probable decline in MICE demand in 2013 continuing to be the core logistics & due to temporary cancellation or / and trading hub in southern YRD, and the downsize of many government MICE growing development of the city’s key events after the 18th National Congress of industries, should boost corporate, MICE the Communist Party of China. and other demand segments. • Rising competition for MICE demand • Maturity of the development zones, ports, throughout China may impact the demand Yinzhou and Eastern New Town should growth of this segment. introduce new enterprises to Ningbo, in • The market would continue to face a turn further stimulating growth in the serious challenge with the oversupply corporate, MICE and other demand situation in the next five years. segments. • Lesser flight frequency and direct routes as • More comprehensive transportation compared to Hangzhou will impede the network should boost the overall demand demand growth in the leisure and MICE generating potential. segments. • Expect an increase in weekend leisure • Weak growth potential in the leisure drive-in demand due to better accessibility segment due to limited tourism resources. and a rise in disposable income among the domestic population. • Entrance of more internationally branded hotels should induce more MICE demand as well as enhance the city’s overall profile.
ESTIMATED OCCUPANCY PROJECTIONS, COMPETITIVE MARKET, 2012-2017
Room Night Room Night Available % Change Demand % Change Occupancy 2012 1,591,176 — 883,744 — 56% 2013 1,973,190 24% 959,923 9% 49% 2014 2,357,535 19% 1,083,664 13% 46% 2015 2,403,160 2% 1,218,147 12% 51% 2016 2,443,310 2% 1,334,644 10% 55% 2017 2,483,460 2% 1,425,535 7% 57% CAAG 9% — 10% — 1%
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.2.7.2 Market ADR Outlook
• The historical CAAG rate of the market ADR between 2008 and 2012 showed no sign of growth as the influx of new supply, albeit being mainly 5-star internationally branded properties, had not only intensified the level of competition, but also created a price war in the market.
• This current price war is contributed by a multitude of factors:
• The intense market competition has strongly influenced some hotels, especially the older properties, to compete aggressively with reduced room rates.
• The reduction in room rates of some properties has thus triggered a cascading effect on the newer and more competitive properties, as many of them are finding it a challenge to maintain rates.
• By observing the existing price war, new entrants, in the hope of quickly establishing a presence in the market, are also being manipulated to offer rather low and heavily discounted rates during their first few years of operation.
• Looking ahead, as a large wave of new supply is expected to continue hitting the competitive market, of which most would be concentrated in the Eastern New Town, a new and fairly premature area in Ningbo, this worsened oversupply problem would likely result in stagnant ADRs in the coming five years.
3.2.8 Yinzhou District Hotel Subset Market Outlook
This analysis also provides a focused, qualitative market outlook of the hotel subset in Yinzhou, which is the most pertinent to the New Century Grand Hotel Ningbo.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
SUMMARY OF OPPORTUNITIES & CHALLENGES, YINZHOU DISTRICT SUBSET
OPPORTUNITIES CHALLENGES
• Strong and positive economic outlook as • Upcoming development of the Eastern Yinzhou District should continue to New Town should create some degree of maintain its leading position as the district competition with Yinzhou District. with the highest GDP and export value in • Despite facing less intense competition Ningbo, which should boost corporate and than the rest of the market, the overall MICE demand for the subset. oversupply problem in Ningbo would still • The recent urban development plan, should ultimately create a major challenge for it be successfully materialized, should hotels in this subset to maintain their transform the district into an increasingly occupancy and ADR. However, despite self-contained, vibrant and attractive area. having said that, the future performance of This should in turn enable competitive the hotels in this subset should be far less hotels in the subset to retain demand that is adversely impacted than the other generated from Yinzhou District, which properties in the city centre and Eastern may have otherwise been previously New Town. captured by hotels in the city centre. • Expect to capture limited demand • Rapid development of the South Business generated from the Ningbo International Zone with the first phase completed in Conference & Exhibition Centre due to the November 2010, has attracted more than district’s relative distance and upcoming 500 companies including big local firms supply additions in the Eastern New Town. such as Aux and Shanshan to Yinzhou District. Aiming to become an important base in the south of the Yangtze River Delta for regional headquarters, export services and R&D, this zone should further stimulate corporate and MICE demand for the district. • Less intense market competition than other hotel subsets in Ningbo given the limited number of new supply additions in this area. • The growing reputation of Dongqian Lake in China should generate more leisure and MICE demand to the district.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
3.3 NEW CENTURY GRAND HOTEL NINGBO — SWOT ANALYSIS
SWOT ANALYSIS, NEW CENTURY GRAND HOTEL NINGBO
STRENGTHS WEAKNESSES
• Affiliated to an established and • Considered to be an older and more dated well-known domestic brand. property in the market. • Offers service standards, design, hardware • The Chinese private dining rooms are less quality and a range of facilities that are popular in the market. well-received in the market. • Offers smaller standard guest rooms in • Given the Hotel’s location in Yinzhou comparison to newer competitive District, which is a maturing area in properties in the market. Ningbo that is at least 20 minutes away by • Smaller range of meeting facilities in car from the city centre and Eastern New comparison to most competitive hotels. Town, it is also considerably less affected by the current market oversupply problem. • Conveniently located to the district government offices, major highways and Lishe International Airport. • A relatively longstanding property that has successfully established a positive reputation in the market. • The food and beverage department achieved the highest profit margin in the sample set in 2011.
OPPORTUNITIES CHALLENGES
• Yinzhou District is becoming a more • Competition from significant additional vibrant commercial area due to an supply in the market. increasing inflow of enterprises. • skilled labour shortage and rising wages. • Less intense market competition in • Continuous rise in operational costs. Yinzhou District given the limited number of new supply additions in this area and its • Upcoming development of the Eastern distance from the city centre and Eastern New Town would create competition with New Town. Yinzhou District. • Gradual maturity of the industrial and development zones would generate more corporate demand into the market.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4 CHANGCHUN MARKET
4.1 CHANGCHUN OVERVIEW
4.1.1 General Information
Changchun, the capital and largest city in Jilin Province with a total area of around 20,604 square kilometres, is located in the heart of the Songliao Plains in Northeast China, and at the intersection point of the third east westward “Europe-Asia Continental Bridge”.
LOCATION OF CHANGCHUN IN JILIN PROVINCE
Changchun
Source: Online Stock Photos
Moreover, Changchun, as a sub-provincial city, has direct jurisdiction over six districts, three county-level cities and one county, as shown below:
CHANGCHUN ADMINISTRATIVE DIVISIONS
Source: Online Stock Photos
Changchun’s population totalled at 7,618,000 inhabitants in 2011, of which 48 percent comprises of the urban population. In terms of climate, Changchun enjoys a temperate, monsoonal climate with an annual average temperature of around 4.8 degree Celsius. The spring and autumn seasons are also generally short, whereas winter is typically long, cold and dry.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.1.2 Economic Overview
4.1.2.1 Economic Indicators
ECONOMIC INDICATORS, CHANGCHUN, 2007-2012
2007 2008 2009 2010 2011 2012 CAAG Registered Population (’000) 7,459 7,525 7,565 7,589 7,618 — — Growth % 1% 1% 1% 0.3% 0.4% — — GDP (RMB bn.) 209 256 285 333 400 446 16% Growth % 20% 22% 11% 17% 20% 12% — Fixed Asset Investment (RMB bn.) 135 182 230 300 243 317 19% Growth % 42% 35% 26% 30% -19% 30% — Retail Sales (RMB bn.) 78 95 109 129 151 174 17% Growth % 17% 22% 15% 18% 17% 15% — Urban Disposable Income (RMB) 12,811 15,003 16,072 17,922 20,487 23,089 13% Growth % 13% 17% 7% 12% 14% 13% — Utilized Foreign Investment (USD mil.) 1,690 2,040 2,430 2,670 3,080 3,680 17% Growth % 20% 21% 19% 10% 15% 19% — Total Import Value (USD mil.) 5,430 7,150 7,460 11,220 15,070 16,780 25% Growth % 31% 32% 4% 50% 34% 11% — Total Export Value (USD mil.) 1,510 1,640 1,090 2,000 2,270 2,900 14% Growth % 39% 9% -34% 83% 14% 28% —
Source: Bulletin of Statistics of National Economy and Social Development of Changchun (2006-2012)
• Continuous GDP growth: This has demonstrated the city’s resilience against the global financial crisis and recent gloomy economic landscape as its GDP experienced a strong CAAG of 16 percent, reaching RMB 446 billion in 2012. Likewise, GDP per capita also rose at a substantial rate of 17 percent, from RMB 28,131 in 2007 to RMB 52,649 in 2011.
• Industrial focus: Changchun focuses on heavy industry, high technology and food processing.
• Fixed asset investment trend: With the exception of 2011, which, like most other cities in China and the rest of the world, had a decline in fixed asset investment due to a difficult economic year, as a whole, there was growth with a CAAG rate of 19 percent between 2007 and 2012.
• Strong growth in retail sales: This is largely attributed by increasing disposable income levels of the local population, in turn creating a trend of growing consumerism and hence, a rise in retail sales between 2007 and 2012 with a CAAG of 17 percent.
• Foreign investment: Albeit a shrinking number of new foreign investment projects, the utilized foreign investment maintained at a healthy CAAG of 17 percent, from USD 1,690 million in 2007 to USD 3,680 million in 2012.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.1.2.2 Major Industries
Changchun is also known as the automobile city of China and its automobile industry remained strong with a CAAG of 18 percent throughout the years, or otherwise representing around 60 percent of the city’s total large-scale industrial output in 2011.
AUTOMOBILE INDUSTRY OUTPUT COMPARISON, CHANGCHUN, 2007-2011
Source: www.tjcn.org
The major corporate players in Changchun include:
• First Automobile Works: First Automobile Works (FAW), the largest automobile manufacturer in China since its inception in 1953, and listed as one of the Fortune 500 companies worldwide, has a base in Changchun with a production chain involving heavy, medium and light-duty vehicles. FAW is also currently one of the major economic pillars of the city.
• CNR Changchun Railway Vehicles Co.: As the largest railway and car manufacturer in China and Asia, CNR Changchun Railway Vehicles Co.’s cumulative output in railway passenger cars and subway cars represent roughly 50 percent and 85 percent of the respective total quantities produced in China.
• Changchun Film Group Corporation: It was formerly known as Changchun Film Studio and one of the cornerstones of the Chinese film industry. In 2003, an announcement was made to begin the first construction phase of the Changchun Film Century City — the first of its kind in China to integrate tourism with film entertainment, in which the design of the park was largely modelled after Universal Studios. The city has also been hosting the biennial Changchun International Film Festival since 1992, an event that was partly founded by the then Changchun Film Studio.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.1.3 Development Zones
DESCRIPTION OF MAJOR DEVELOPMENT ZONES IN CHANGCHUN
Zone Highlights CETDZ Changchun Economic & Technological Development Zone: • State-level zone since April 2003 • 3 leading industries — automotive & components, biochemical engineering, service industries
CHTDZ Changchun High Technology Development Zone: • One of the first 27 state-level advanced technology development zones • 5 main industries — bioengineering, automobile engineering, new material fabrication, photo-electricity, and information technology • Educational institutions, scientific research institutions, national laboratories
CMLEDZ Changchun Moon Lake Economic Development Zone: • Provincial-level development zone • Leading industry — tourism aiming to develop a first-class tourist destination of international standards • Annual host of the Changchun Ice & Snow Festival • Other industries — education & scientific research, real estate, and high technology
CAIDZ Changchun Automotive Industry Development Zone: • Largest automobile trading service base in Northeast China • January 2011 — renamed as Xixin Economic & Technological Development Zone (national level) • Automobile manufacturing factories such as FAW Jiefang Automotive Co., Ltd., FAW Volkswagen Automotive Co., Ltd., and FAW Toyota • Over 300 companies specializing in manufacturing automobile spare parts • Changchun Automobile Wholesale Centre — one of the largest auto-vehicle and spare part wholesale centres in China • Major logistics enterprises — FAW Lujie Logistics Co. Ltd., Jilin Changjiu Logistics Co., Ltd., and Jilin Huahuang Logistics Co., Ltd., to facilitate the automobile trading and distribution network • The 2010 — 2020 vision aims to further expand 118 square kilometres of land to become a prominent, world-class automobile industrial platform
CREMIP Changchun Rail Equipment Manufacturing Industrial Park: • Co-developed by the government and CNR Changchun Railway Vehicles Co. • A major manufacturing base for railway passenger cars and subway cars in China • The government hopes it would become Changchun’s new economic pillar in the future
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Zone Highlights CSDZ Changchun Southern (Urban Economic) Development Zone: • Creation of a new CBD development following the relocation of the municipal government to Nanguan District in October 2006 • Provincial-level development zone • Integrating features including an administrative centre, commercial centre, business centre, landscaped parks, cultural institutions and high quality residences. • The municipal government forecasts the zone to achieve a GDP of RMB 20 billion in 2015 and RMB 60 billion in 2020
4.1.4 Transportation Infrastructure
4.1.4.1 Airport
Changchun Longjia International Airport is located 31 kilometres east of central Changchun. It has successfully established a comprehensive domestic flight network, linking Changchun with many major cities in China, such as Beijing, Shanghai, Guangzhou, Chengdu, Haikou, Shenzhen, Xiamen and Nanjing. International flight routes to Hong Kong, Seoul, Vladivostok and Tokyo are also available.
AIRPORT STATISTICS, CHANGCHUN LONGJIA INTERNATIONAL AIRPORT, 2007-2012
Passenger Arrivals % Change No. of Flights % Change Cargo (tons) % Change 2007 2,662,682 — 24,254 — 33,467 — 2008 3,049,767 15% 29,366 21% 36,511 9% 2009 3,878,416 27% 35,909 22% 48,085 32% 2010 4,749,471 22% 42,199 18% 61,672 28% 2011 4,971,667 5% 41,364 -2% 62,256 1% 2012 5,819,581 17% 49,732 20% 66,214 6% CAAG 17% — 15% — 15% —
Source: China Aviation Administration
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
The airport underwent expansion from June 2009 to August 2011 and the enhanced features include the following:
• Increase in parking apron from 120,000 square metres to 220,000 square metres.
• Increase in the number of parking bays from 19 to 32.
• Annual passenger handling capacity is expected to increase from 3,200,000 to 6,500,000.
4.1.4.2 Railway
Changchun is constantly improving its railway system to be more comprehensive, integrated and efficient by encompassing the following:
• Changchun Railway Station, situated at the north end of Renmin Avenue, is the main station for all inter-provincial train stops and transfers.
• Both Changchun East Railway Station and Changchun South Railway Station are comparatively small and only service local trains.
• The Changchun-Jilin Inter-City Rail Line, opened in December 2010, has dramatically reduced the travelling time of 100 minutes to 39 minutes between the two cities. It also stops at Changchun Longjia International Airport along the way, which is only approximately 13 minutes away from Changchun Rail Station.
• The Harbin-Dalian High Speed Rail is the first high speed rail line in Northeast China with a total length of 904 kilometres which passes through Harbin, Changchun, Shenyang and Dalian. Completed in December 2012, travelling time between Harbin and Dalian has since been drastically shortened from 9 to 4 hours. In Changchun, a new West Railway Station, located in Lvyuan District, had been built to accommodate this rail line and the travelling time from Changchun to Harbin and Dalian would be shortened to approximately 40 minutes and two and a half hours respectively.
4.1.4.3 Light Rail & Subway System
Changchun is one of the pioneer cities in China to implement a light rail system. Lines 3 and 4 are currently in operation. In particular, Line 3 is about 32 kilometres in length with 33 station stops stretching from Changchun Rail Station to Changchun Film Century City, while Line 4, opened in May 2012, is currently about 16 kilometres long with 16 station stops and travels in a north-south direction from Changchun Rail Station to the South 4th Ring Road.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
LIGHT RAIL LINES3&4,CHANGCHUN
Source: http://www.urbanrail.net/as/chan/changchun.htm
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
In June 2009, the government approved the construction of two new subway lines. Specifically, subway line 1, slated to complete in 2015 with a total length of 37 kilometres and 16 station stops, is planned to run along Renmin Avenue in a north-south direction from Changchun Rail Station to Changchun Municipal Government Station. Subway Line 2, scheduled to complete in 2016 with a total length of around 25 kilometres and 17 station stops, would travel along Jilin Road, Jiefang Road and Jingyang Road in an east-west direction. The two new subway lines are planned to intersect at Jilin Exhibition Hall Station on Jiefang Road.
PLAN OF SUBWAY LINES1&2,CHANGCHUN
Source: http://www.fpang.com/space-1-do-blog-id-333.html
4.1.4.4 Highway
Changchun is also easily accessible by road and the four main highways are — Changchun-Jilin, Changchun-Yingchengzi, Changchun-Siping and Changchun-Fuyu, and they are effectively connected to Shenyang, Dalian, Beijing, as well as other national highways in Jilin Province and cities in the surrounding provinces.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.1.5 Tourism Overview
4.1.5.1 Major Attractions
MAP OF MAJOR TOURIST ATTRACTIONS IN CHANGCHUN
Attraction 1 Changchun Film Century City 長影世紀城 2 Jingyuetan Scenic Zone 吉林長春淨月潭景區 3 Changchun World Landscape Park 長春世界風景園 4 Weiman Palace Museum 偽滿皇宮博物院 5 Changchun World Sculpture Park 長春世界雕塑公園 6 Lianhua Mountain Ski Slopes 蓮花山滑雪場 7 South Lake Park 南湖公園
Regardless of the range of tourist attractions available, Changchun’s tourism industry is mainly sustained by corporate and MICE rather than the leisure segment.
4.1.5.2 Tourism Statistics
TOURISM STATISTICS, CHANGCHUN, 2007-2011
2007 2008 2009 2010 2011 CAAG Domestic Visitor Arrivals (’000s) 15,872 18,966 22,465 26,126 30,842 18% International Visitor Arrivals 200,000 217,000 217,000 250,000 301,600 11% Tourism Foreign Exchange Rev (US mil.) 89.30 106.80 116.25 137.48 169.74 11% Total Tourism Rev (RMB mil.) 18,200 22,830 28,450 35,040 43,165 24%
Source: Bulletin of Statistics of National Economy and Social Development of Changchun (2007-2011)
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
PROPORTION OF DOMESTIC VS. INTERNATIONAL VISITOR ARRIVALS, CHANGCHUN, 2007-2011
2007 2008 2009 2010 2011 Domestic Arrivals 99% 99% 99% 99% 99% International Arrivals 1% 1% 1% 1% 1%
Source: Bulletin of Statistics of National Economy and Social Development of Changchun (2007-2011)
Note: It should be highlighted that, though the tourism statistics presented above are extracted from the official government database, these figures should be cautiously interpreted as there can be instances of multiple counting when total domestic arrivals are calculated based on total visitors to all major attractions in the city.
4.1.6 Conclusion
In conclusion, largely fuelled by China’s booming economy and the continuous growth in the city’s automobile industry, Changchun has been experiencing strong economic growth year-on-year since 2007. Together with the constant improvement in the transportation and overall infrastructure, the city should experience continued growth and development. With regards to the tourism industry, given the city’s reliance on business tourism, the anticipated economic growth especially in the automobile and rail equipment manufacturing sectors, should prompt an increasing volume of business and MICE travelers in the future.
4.2 CHANGCHUN HOTEL MARKET
4.2.1 Competitive Set
Therefore, this analysis comprises of 8 international and domestic properties which would best represent as the top-tier competitive market in Changchun.
SELECTED COMPETITIVE SET, CHANGCHUN
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Hotel Star Rating Opening Year Room Count 1 New Century Grand 5-Star 2008 328 2 South Lake Hotel (南湖賓館) 5-Star 1960 609 3 Swiss-Bel Hotel 4-Star 1996 249 4 Shangri-La Hotel 5-Star 1996 556 5 Days Hotel 5-Star Equivalent 2002 188 6 Jin-An Hotel (金安大飯店) 5-Star Equivalent 2008 554 7 Huatian Hotel (華天大酒店) 5-Star Equivalent 2008 457 8 Song Yuan Hotel (松苑賓館) 5-Star 1958 223 Grand Total — — 3,164
4.2.2 Historical Performance
HISTORICAL PERFORMANCE, COMPETITIVE MARKET, 2010-2012
Room Nights Room Night Occupancy ADR RevPAR Available Demand % (RMB) (RMB)
2010 1,011,415 — 684,777 — 68% — 557 — 377 — 2011 1,071,275 6% 738,243 8% 69% 1% 582 4% 401 6% 2012 1,124,565 5% 768,521 4% 68% -1% 612 5% 418 4%
CAAG 5% — 6% — 0% — 5% — 5% —
Note: Sheraton Changchun Jingyuetan Hotel, opened in December 2012, was not included in the above analysis. Note: Annual change in occupancy is in percentage point basis.
• Moderate supply growth: The competitive market, albeit the absence of new entrants between 2010 and 2012, still experienced a moderate year-on-year growth in supply due to the expansion in room inventory as well as the introduction of newer, renovated rooms in some existing competitive hotels.
• No oversupply: Overall, unlike many other cities in China which are facing oversupply, the competitive market, has experienced relatively mild growth in rooms available, with a CAAG rate of merely 5 percent between 2010 and 2012.
• Continuous demand growth: The competitive market’s overall room night demand rose by 6 percent in CAAG terms, which is 1 percent higher than the CAAG in supply.
• Modest demand growth in 2012: Main reasons cited include the following:
• The prolonged, gloomy global economic situation such as the severe Euro debt crisis and incessant economic troubles of the U.S., have ultimately weakened the economic development of other countries including China. Therefore, room night demand grew only at a modest rate of 4 percent in 2012.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• The current political tension between China and Japan has caused a general decline in market demand from the Japanese including corporate travelers, long-stay guests and leisure tour groups.
• The opening of FAW’s secondary production plants in other cities, such as Foshan and Chengdu, has, to a certain extent, diluted the enterprises’ corporate and long-stay demand in Changchun as some employees, including senior executives, technicians and project support staff, have been transferred to the other production plants.
• Stable occupancy trend: The annual market occupancy had been fairly stable during the past three years as the competitive market constantly performed within the high-60 percent range.
• Steady ADR growth: The market ADR trend had shown positive year-on-year growth as it grew at a CAAG rate of 5 percent, from RMB 557 in 2010 to RMB 612 in 2012.
• Positive RevPAR trend: Lastly, despite minor fluctuations in market occupancy, as the market ADR showed a constant upward trend, it was able to help offset the negative impacts of a slower demand growth and continuous rise in supply. As a result, market RevPAR increased at a CAAG rate of 5 percent, or from RMB 377 in 2010 to RMB 418 in 2012.
4.2.3 Demand Segmentation Dynamics
DEMAND SEGMENTATION, COMPETITIVE MARKET, 2012
4.2.3.1 Corporate Demand Segment
• Changchun, an industrial city focusing on manufacturing, mainly generates less premium corporate demand, ranging from middle-management business travelers, foreign technical support staff and to a smaller extent, senior corporate executives.
• First Automobile Works (FAW), one of the largest corporations in Changchun, along with other smaller, auto-related companies, are the competitive market’s primary source of corporate demand.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Furthermore, companies involved in other sectors such as finance, investment, logistics and technology also generate some corporate demand, and they are typically housed in the grade-A office towers located along Xian Avenue and Renmin Avenue.
• More than half of the total demand is domestic corporate travelers, who are usually more rate-conscious and less brand-loyal than international travelers.
4.2.3.2 MICE Demand Segment
• This demand segment is primarily driven by corporate and government in-house meetings.
• FAW and other auto-related enterprises also contribute the most in corporate MICE demand.
• As the provincial capital of Jilin, Changchun is able to capture a significant volume of government MICE demand, mainly in the form of internal review and planning meetings, government-initiated trade shows and industry forums, and organized events to host foreign dignitaries and trade delegates. In contrast to corporate MICE demand, government MICE demand is generally more price-sensitive due to stricter budget limitations.
• Another important source of MICE demand derives from large, annual, government-initiated conventions and exhibitions, especially the Changchun International Automobile Exhibition in July, International Agriculture Exhibition in August, and the Northeast Asia Investment and Trade Expo in September, which are the top three biggest event highlights in the city every year.
• Events hosted by universities such as academic seminars and graduate job fairs also create some MICE demand for the competitive market.
4.2.3.3 Leisure Demand Segment
• Changchun is not a leisure destination due to its scarce tourism resources. As such, leisure demand is of a miniscule scale in the competitive market.
• Changchun used to be an important transient point in the past among leisure travelers heading to Mount Changbaishan; however, this particular demand has been reducing ever since the opening of the airport in Mount Changbaishan in 2008, as travelers can now have the option to fly directly to their final destination.
• Changchun experiences a very seasonal leisure market as leisure demand is generally concentrated between the summer months of May and September. However, despite having said that, Changchun does attract some leisure groups during the winter season with its Ice and Snow Festival and ski slopes as well.
• The domestic travel market is currently the biggest source of leisure demand for the competitive market.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
• Overseas tour groups, particularly Japanese groups, though very small in volume, also contribute to the competitive market’s overall leisure demand.
4.2.3.4 Other Demand Segment
• This segment of the competitive market primarily refers to long-stay demand, which is mainly comprised of foreign expertise, technicians, project support staff, and to a small degree, high-end executives.
• Most of the extended-stay guests are employees of either FAW or other auto-related companies.
• Competitive hotels without dedicated serviced apartments would utilize their suites and standard rooms to accommodate extended-stay guests instead.
• These guests would normally stay in Changchun for at least two weeks.
4.2.4 Nationality
NATIONALITY MIX, COMPETITIVE MARKET, 2012
Other 5% North America Japan / Korea 2% 4%
Europe 17%
Domestic 72%
4.2.5 Seasonality
MONTHLY OCCUPANCY TREND, COMPETITIVE MARKET, 2011
800 100.0%
80.0% 600
60.0% 400 40.0%
200 20.0%
0 0.0%
Jul Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec
Market ADR Market Occupancy
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
The competitive market experiences less extreme monthly occupancy fluctuations because it is predominantly corporate-driven, which is a segment that is typically known to be a stable source of demand. Nevertheless, the Lunar New Year festive season is usually considered to be the low season as there are few corporate travelers or MICE events during that period. Therefore, as graphed above, a drop in occupancy in February, which was also the Lunar New Year season in 2011, can be observed.
The peak season typically stretches from July to September as the city’s top three biggest annual events, namely the Changchun International Automobile Exhibition, International Agriculture Exhibition, and the Northeast Asia Investment and Trade Expo, are held during this period.
4.2.6 Additions to Supply
SUPPLY ADDITIONS, COMPETITIVE MARKET
Hotel Opening Year Room Count Sheraton Jingyuetan December 2012 345 Hyatt Regency March 2014 427
ESTIMATED ROOM SUPPLY, COMPETITIVE MARKET, 2012-2017
2012 2013 2014 2015 2016 2017 New Supply: Sheraton Jingyuetan 21 324 Hyatt Regency 358 69 New Supply for the Year 21 324 358 69 0 0 Total Market Supply 3,102 3,419 3,881 3,950 3,950 3,950 % Change 6% 10% 14% 2% 0% 0%
Please note that this list is not intended to disclose all known and possible hotel additions to the competitive market in the future but highlights the most likely projects to be completed. It should also be noted that many projects may often fall behind the scheduled opening dates, or may even cease due to myriad factors.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.2.7 Competitive Hotel Market Outlook
4.2.7.1 Market Occupancy Outlook
SUMMARY OF OPPORTUNITIES & CHALLENGES
OPPORTUNITIES CHALLENGES
• Continuous improvement in transportation • Expect slower growth in all demand infrastructure should boost the overall segments in the short run due to the demand generating potential. sluggish global economic outlook. • Constant economic growth, along with • Probable decline in MICE demand in 2013 more mature development zones and the due to temporary cancellation or / and introduction of grade-A offices to prompt downsize of many government MICE an inflow of new businesses / corporations, events after the 18th National Congress of should support a moderate annual growth the Communist Party of China. in the corporate and MICE demand • Rising competition for MICE demand segments. throughout China, as well as the city’s lack • Being the main development hub of high of unique selling points to become an speed rails in China should also generate attractive MICE destination, may increasing corporate and MICE demand in inevitably impact the demand growth in the market. the MICE segment. • Changchun, as the capital of Jilin, would • Weak growth potential in the leisure continue to be an important commercial, segment due to strong seasonality, limited political and cultural centre in the tourism resources, and the opening of province, which would in turn, help to Mount Changbaishan Airport. maintain moderate growth in the market’s future corporate and MICE segments. • Introduction of newer, internationally branded properties should help induce higher-yielding MICE demand to the market, as well as uplift the city’s overall appeal in China.
ESTIMATED OCCUPANCY PROJECTIONS, COMPETITIVE MARKET, 2012-2017
Room Night Room Night Available % Change Demand % Change Occupancy 2012 1,132,230 — 768,521 — 68% 2013 1,247,935 10% 798,232 4% 64% 2014 1,416,565 14% 860,160 8% 61% 2015 1,441,750 2% 916,520 7% 64% 2016 1,441,750 0% 962,329 5% 67% 2017 1,441,750 0% 997,441 4% 69% CAAG 5% — 5% — 0%
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.2.7.2 Market ADR Outlook
• Factors that would drive the growth in market ADR include:
• Apart from the existing Shangri-La property, which is now considered to be relatively dated and old, the current competitive market is significantly lacking in 5-star international brands. Therefore, the anticipated openings of two 5-star international hotels, despite foreseeing a minor decline in ADR in the short run due to introductory discounts and a sudden surge in market competition during their first year of operation, are most likely able to eventually push up the overall ADR ceiling of the market in the future.
• Shangri-La, the rate leader of the market, showed a five-year CAAG of 5 percent while New Century Grand, the second rate leader in 2012, had a CAAG of 13 percent in its ADR since it opened in 2008.
• Besides, compared with many other hotel markets in China, the competitive market’s future rate of growth in supply is reasonably moderate. Hence, unlike many other markets which are starting to fear the repercussions of a market oversupply, mainly in the potential struggle in occupancy and ADR as a result of stiff market competition, the competitive market is least likely to face this problem in the next 5 years.
• Based on the historical trends and future market supply and demand conditions, an optimistic ADR outlook is pictured for this competitive market.
Therefore, market ADR is expected to show a relatively positive CAAG of about 3 to 5 percent over the next five years.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
4.3 NEW CENTURY GRAND HOTEL CHANGCHUN — SWOT ANALYSIS
SWOT ANALYSIS, NEW CENTURY GRAND HOTEL CHANGCHUN
STRENGTHS WEAKNESSES
• Affiliated to an established and • Offers a limited range of meeting rooms in well-known domestic brand. comparison to most competitive properties in the market. • Offers service standards, hardware quality and a range of facilities that are • The surrounding atmosphere of the Hotel well-received in the market. is less vibrant than other competitive properties that are located in the core • Opened in 2008, it is considered to be one commercial area. of the newer properties in the market. • Strategic location in Lvyuan District which is close to the district government, FAW and Northern China’s Automobile Trade City (中國北方汽車貿易城). Moreover, its location is also further away from the future supply additions. • Has established strong, successful business ties with FAW, the largest corporate demand generator in Changchun. • Third best revenue generating index (RGI) performer in the competitive market (RGI = 1.16).
OPPORTUNITIES THREATS
• Closely located to the future largest West • Strong competition from new, Railway Station in Changchun, which is internationally branded supply additions in planned to be the terminal for the the market. Harbin-Dalian High Speed Rail. • Problem of a skilled labour shortage wages • The future introduction of more increases. internationally branded properties should • Continuous rise in operational costs. uplift Changchun’s city image as well as induce higher-yielding demand into the • Short-term, regional political tensions, market. especially with Japan, and the uncertain global economic situation, might adversely • Continuous economic growth with an impact the Hotel’s performance. increasing number of companies and production factories should generate a • Other older, competitive properties that larger volume of corporate and MICE have either been constantly upgrading their demand for the Hotel. hardware, or recently underwent major renovation to stay attractive in the market, might potentially pose as stronger threats to the Hotel.
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APPENDIX V LETTER FROM THE MARKET CONSULTANT IN RELATION TO ITS REPORT ON HOTEL SECTORS IN HANGZHOU, QINGDAO LAKE, NINGBO AND CHANGCHUN
Abbreviations
• ADR: Average Daily Rate
• FIT: Free Independent Traveler
• Occ: Occupancy
• RevPAR: Revenue Per Available Room
• RNA: Room Night Available
• RND: Room Night Demand
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