China, India Leading Asian Hotel Performance Growth
The outlook for the Asian hospitality industry remains positive for 2006 as a surge in arrivals and domestic travel has driven up occupancy rates and prices in hotels. With business and conference traffic increasing, negotiated rates have been blown out of windows, and hotels in major cities no longer follow seasonal patterns, being full year-round.
Ernst & Young LLP's latest global activity report on hospitality industry trends forecasts strong operating performance growth worldwide, with China and India leading the pack.
"We are seeing major international hotel companies push ahead in emerging markets, such as China, India and Eastern Europe, with new development programs aimed at establishing strong footholds in those fast-growing geographies," said Michael Fishbin, leader of Ernst & Young's U.S. hospitality advisory practice.
The report sees strong growth in China, where tourist demand is expected to double the global growth rate. Major hotel companies are trying to expand in China in nearly every industry segment. Also, Japan has seen a leap in the development of luxury hotels.
E&Y also predicted India's hospitality market should see rapid growth in 2006. Local and international hotel companies are expanding their brands, especially in the budget segment.
In Singapore, which last year lifted a ban on casinos in order to boost tourism, four consortia are bidding for the first of two new casino-integrated resorts. By mid-2006, the name of the selected developer for the first casino on Marina Bay in the city center will be announced. The results of the tender for the second casino resort on Sentosa Island will be known by year-end.
The government also is actively encouraging the construction of new hotels and recently has allocated new land plots for the sector. At least 3,000 new rooms should be in operation by 2007.
Australia's hotel investment market remains buoyant. Jones Lang LaSalle Hotels said favorable conditions for purchasing hotels are likely to continue throughout 2006. The firm's recently released Hotel Investment Outlook 2006 also reported that, with limited new hotel supply, competition will remain fierce and hotel assets strongly contested.
Australia's major cities are all in the growth phase of the hotel cycle and Sydney is expected to remain the most sought-after location because of its gateway destination status. Investors are starting to look at building hotels in the such two-to-three-star sector brands as Ibis, Travelodge and Formule 1.
"Rising construction costs and the high cost of land will continue to limit hotel development in most major markets," said Jones Lang LaSalle Hotels Asia Pacific CEO David Gibson. As a result of limited new supply, hoteliers have a chance to lift room rates and revenue per available room, thus further increasing the sector's appeal.
"Experts are seeing new development," Fishbin said, "but they also see the sometimes complicated landscape in terms of tax implications, regulatory compliance and other opportunity costs. Understanding the full risk profile of new projects—especially in emerging countries—will be essential for hospitality companies looking to deliver shareholder value."
Already, alliances are being strengthened throughout Asia. For instance, Kempinski Hotels and The Leela Palaces & Resorts extended their management alliance, in place since 1987, in India. In addition to hotels in Mumbai, Bangalore and Kovalam, hotels in New Delhi—Gurgaon, Udaipur, Chennai, Hyderabad and Pune—will be included in that agreement in the next four years. A further investment of $70 million will be made in a 300-room luxury hotel in Hyderabad.
Taj Hotels Resorts and Palaces and Korean Shilla Hotels & Resorts have entered into a strategic marketing alliance to develop cross-promotional opportunities. Raymond Bickson, managing director and CEO of Indian Hotels Company Ltd., said: "Global alliances are now the way of the future for us. This alliance will bring in a synergistic approach to the marketing efforts of the two brands."
Tourism is often given to vagaries of nature and man and Asia is no exception, having been hit in the past by SARS, tsunami and terrorist threats. Already, January 2006 saw a marked decrease for flights to Bangkok following a fear of the bird flu outbreak in Southeast Asia. However, real estate development on the upswing seems to be here to stay for a long while.