Asian Cities Report – 2H 2019

REPORT Savills Research Shanghai Hospitality Shanghai Hospitality Shanghai sees the arrival of more luxury hotel chains

ECONOMIC OVERVIEW GRAPH 1: Mainland China Inbound vs Outbound Tourism, 1994 to 2018 According to the Ministry of Culture and Tourism, China inbound tourist numbers stood at 141.2 million in 2018, an increase of 1.2% year-on-year (YoY), Outbound Inbound bringing with it tourism revenue of US$127 billion, up 3.0% YoY. Meanwhile, 180 domestic tourism totalled US$5.5 billion in 2018, up 10.8% YoY, bringing RMB5.1 160 trillion in revenue (up 12.3% YoY). Shanghai recorded 8.9 million inbound tourists in 2018, according to the 140 Shanghai Municipal Tourism Administration, up 2.4% YoY, with a revenue of 120 US$7.3 billion, up 8.4% YoY. At the same time, the city received 340 million 100 domestic tourists, up 6.7% YoY.

80 SUPPLY AND STOCK 60 Shanghai has 72 fi ve-star hotels, 65 four-star hotels and 51 three-star hotels offi cially registered with the Ministry of Culture and Tourism. Shanghai is home MILLION PERSON TIMES PERSON MILLION 40 to the second-most fi ve-star hotels in China after Shenzhen (101 fi ve-star hotels). 20 Shanghai played host to the second annual China International Import Exhibition in Q4/2019 thanks to its global economic status and MICE facilities for business 0 travellers and its mature tourist infrastructure.

Source The Ministry of Culture and Tourism, Savills Research INVESTMENT Three hotel investment deals were concluded in the fi rst 11 months of 2019 for a GRAPH 2: Shanghai ADRs And Occupancy (12MMA), total consideration of RMB3.53 billion. All the hotels were located in decentralised January 2008 to August 2019 locations—InterContinental Shanghai NECC in Qingpu, Onehome Art Hotel Shanghai in Pudong and Xingfu Lai Hotel in Yangpu. The InterContinental and Occupancy ADR (RHS) 80% 1,000 the Onehome hotels will continue to be operated as hotels while the Xingfu Lai Hotel is expected to be converted into residential leasing apartments. The 75% 950 Qingpu and Pudong deals were both done in Q1/2019 while the Yangpu deal was completed in Q3/2019. 70% 900

65% 850 RATES AND OCCUPANCY

RMB Despite its economic importance and vibrant tourism and business community, 60% 800 Shanghai has one of the lowest average daily rates (ADRs) in the AP region. 55% 750 The market never truly recovered after the overbuild in the run up to the 2010 World Expo, which saw occupancy rates immediately before and after of 50-55%. 50% 700 In order to boost occupancy rates after the Expo, hotels lowered their ADRs 45% 650 even further, eventually reaching just RMB600 per night by the start of 2015. Continued growth in the economy and tourism sector started to push occupancy 40% 600 rates higher, eventually allowing hotels to start applying moderate increases in nightly rates. As occupancy rates started to plateau and drift at the start of 2018, hotels started to roll back some of those increases. Source STR, Savills Research

GRAPH 3: Attendance Figures, TABLE 1: Shanghai Hotels Transactions, 2019 2017 vs 2018

2017 2018

Chimelong Paradise, Guangzhou TOTAL Tivoli Gardens, Copenhagen PROJECT ADDRESS AREA BUYER CONSIDERATION Walt Disney Studios Park, Paris (RMB MILLION) , Netherlands Europa-Park, Germany Ocean Park Kong Everland, Yongin InterContinental 1700 Xuguang 536 Greenland Nagashima Spa Land 2,010 Lotte World, Seoul Shanghai NECC Rd, Qingpu (Units) Group Disneyland Universal Studios Hollywood Universal's Islands of Adventure, Orlando Disneyland Park at Disneyland Paris Onehome Art 2299 Zuchong 43,998 Sino-ocean Disney California Adventure Park 1,408 Universal Studios Florida Hotel Shanghai Rd, Pudong (Sq m) Capital Chimelong Ocean Kingdom, Hangqin Disney's Hollywood Studios, Florida Park , Florida Disney's Animal Kingdom, Florida 1300 Yixian Rd, 4,500 Jingrui Universal Studios Japan Xingfu Lai Hotel 113 Tokyo DisneySea Yangpu (Sq m) Holdings Tokyo Disneyland Disneyland Park, California , Florida 0 3 6 9 12 15 18 21 MILLION PEOPLE Source Savills Research & Consultancy Source AECOM, Themed Entertainment Association, Savills Research

savills.com.cn/research Shanghai Hospitality

Citywide ADRs reached RMB623 for the 12 months through to August 2019, GRAPH 4: China Hotel Investment Deals Four while occupancy rates stood at 74.4%, resulting in a revenue per available room Quarter Rolling Total, December 2009 to June 2019 (RevPAR) of RMB464. This compares favourably to China’s metrics of an ADR of RMB509, occupancy rate of 72.5% and a resulting RevPAR of RMB369. 18

TRENDS 16 Shanghai Disney opened its doors in 2016, and in 2018 saw visitor numbers rise 14 7.3% YoY to 11.8 million visitors, according to the 2018 AECOM and TEA Theme Index report. After Disney’s success, several international theme park operators 12 have made plans to open their own locations in China to tap into the country’s 10 growing entertainment travel market. Theme park groups include the likes of Universal Studios, Lionsgate Entertainment and Legoland. Legoland recently 8 announced plans to open a location in Shanghai’s suburban district of Jinshan. US$ BILLION 6 While this may compete with Disneyland, having two major international brand theme parks in the same city shows the confi dence developers have in the 4 prospects for China and, specifi cally, Shanghai’s tourism industry. More broadly, 2 theme parks are part of the wider trend of experiential consumption. They act as the nucleus and catalyst for decentralised retail and hospitality developments, as 0 Shanghai’s Disneyland has shown since opening in 2016. Established hotel chains, having fended off competition from Airbnb and domestic rivals such as Tujia, are seeing a new competitor emerge in the form of Source RCA, Savills Research companies such as OYO hotels and H Hotels. These fi rms aim to transform the NB: excludes Dalian Wanda’s hotel portfolio disposal in early 2018.

Shanghai is at the forefront of China’s maturing tourism infrastructure and with the addition of Legoland in 2023, the city will continue to be a world-class destination.

highly-fragmented hotel market in China, which was reported to have only 19% GRAPH 5: China Investment Deals By Asset Class, (roughly 3.2 million keys) of its hotel market operated by hotel chains in 2017, 2018 to 2019 compared to the US, where 70% of hotels are operated by hotel chains, and Europe where the fi gure is closer to 40%.

OUTLOOK Hotel, 11% Approximately 4,700 upper-midscale-and-above keys are forecast to be added to the Shanghai market between the end of 2019 and 2022, from brands like Ritz Carlton, Dusit Thani and The Autograph Collection by Marriot. For the country as Office a whole, approximately 125,000 keys are scheduled to be completed with brands Retail such as Intercontinental, Jumeirah, Pullman and St. Regis. China’s domestic tourism sector is expected to continue growing steadily in Industrial the coming years in response to the growing middle class’ increased affl uence Hotel and mobility, improved tourism facilities such as new theme parks and expanding infrastructure like high-speed rail, highways and airports. The domestic market Apartment is also expected to benefi t from a weaker RMB which makes overseas travel more expensive, a resurgence in national pride that leads people to explore ancient and modern history around the country, as well as enthusiasm around the upcoming 2022 Winter Olympics. These factors and others bode well for the outlook of both Shanghai and China’s tourism sectors looking forward to 2020 and beyond. Source RCA, Savills Research Savills Shanghai 25/F Two ICC No. 288 South Shaanxi Road Shanghai 200031, China +86 21 6391 6688