Changes to the overall market demand and operational pressure due to the increasing number of hotels

In 2012, both domestic and outbound touristscontinuously increased over the previous year; however, international tourist arrivals decreased,mainly affected by the sluggishglobal economy. According to the ‘China Hotel Market Outlook 2013’—the latest research by Jones Lang LaSalle’s Hotels and Hospitality Group in conjunction with the China Tourism Hotel Association—the overall surveyed hotel performance weakened slightly in 2012 as the government introduced and implementedthe Eight-point Rule. As China’s property development continues to evolve, Jones Lang LaSalle believes that hotel supplies will continue to grow as an important component of the overall mixed-use projects and large-scale urban developments, especially in the Midwest cities with big potentials. The report also highlights significant trends and opportunities in the industry, such as the following:

  • Compared with the anticipation for the market in 2012, the hotel performance forecasted for 2013 by the surveyed hotel was relatively conservative.
  • In 2012, only the West China region recorded a growth in RevPAR, while all the other regions showed various degrees of decline.
  • Business travel is still the biggest overall demandgenerator, and this trend is set to continue. Thedemand for individual leisure travel has increased for two consecutive years, whilethe group leisure traveler has decreased.
  • Operational costs continued to rise in 2012—as seen in 2011—which was one of the biggest challenges faced by the hoteliers.
  • Based on factors such as economic uncertainties and political issues, the report generally concluded that most hotels held neutral or even negative views on the future of China’s hotel market.

Andy Flaig, Managing Director of Jones Lang LaSalle’s Hotels and Hospitality Group,indicates: “The operational difficulty of many hotels in China are exacerbatedbecause of the excessive hotel supply and rising operational cost. Hence, it is very critical to achieve the annual budget andcontrol the operational cost through active asset management which aims to supervise the service standard and management agreement executionand monitor the capital expenditure to maximize the cash flow and the overall hotel asset value.” Patrick Zhu, Vice President of Jones Lang LaSalle’s Hotels and Hospitality Group, further notes: “The operational pressure felt by the surveyed hotels is mostly derived from both international and domestic economic uncertainties, the implementation of the Eight-point Rule, the excessive volume of future hotel supply, the deteriorated hotel facilities as well as high-labor turnaround and, thus, inferior guest service. As a result, compared to last year’s anticipated market outlook, the forecastfor this year is quite pessimistic.”
The Development of Future Hotel Supplies

According to the 2012 forecast, the top cities with the highest growth in hotel rooms in 2015 would be Suzhou, Xi’an, Chongqing, Qingdao, Hangzhou, Wuhan, Wuxi and Xiamen. Moreover, Suzhou, Xi’an, Guangzhou, Dalian, Wuhan, Hangzhou, Chengdu, Shanghai, Chongqing and Beijing would be the top ten cities by total real estate investment, which is not only consistent with the cities that have the highest hotel room supply, but also demonstrates that the real estate development in the Midwest cities will be faster and the potential for growth is higher.

Creating Continuous Hotel Real Estate Values

As the large volume of hotel supply enters the market and the operational pressure continues to be intensified by the increasing cost, guests’ expectations and price sensitivity on products and services, Jones Lang LaSalle’s Hotels and Hospitality Group advised hotels to improve their guest experience through optimizing hardware facilities, enhancing sales strategies and improving service qualities, as well as conducting effective asset management to maximize hotel property values for the owner. Launching a new hotel product, such as the development of select service hotelthat are becoming more and more popular,is another way to create new opportunities to maximize the return on investment.

Sustainable Tourist Development

Developing tourist destination has become one of the best motivations for real estate developers to actively expand their targeted leisure market under the pressure brought by the execution of national real estate policies, the increasing hotel supplies and the decreasing international tourist arrivals. Besides the tourism resources—which are the core influences of tourist attractions, the construction of transportation infrastructure, the overcomingof seasonality issues, the enhancement of shopping and entertainment facilities and the transformation from sightseeing to recreation are the key elements to the success of a tourist destination development. Hangzhou’s Xixi National Wetland Park, Sanya’sHaitang Bay and Jilin’s Changbaishan International Leisure Zone are good sustainable tourist developments that were determined from a market perspective and government support on infrastructure improvement.

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