BTN Research: Hotel Development Booming In Emerging BRIC Markets
Most major hotel companies are pouring capital into development in the emerging markets of Brazil, Russia, India and China, although consultants said limited supply and communication barriers in negotiations will continue to be a challenge for travel buyers establishing hotel programs in such countries.
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Kathy Pruett, senior director of consulting at BCD Travel's consulting arm Advito, said having local representation within such regions is key. Some hotels might not understand the request for proposals or the procurement process. Although U.S. buyers can work with hotel brands that have a sales presence in North America, working with a local travel management company, hotel broker or consultant can help identify local independent properties that fit a program, she said.
Of the BRIC countries, China was the top interest of buyers trying to establish global hotel programs, Pruett said. It also had the most modest growth in average negotiated room rate of the four countries in 2007 as compared with 2006, according to the HRG 2007 Hotel Survey released earlier this year.
HRG reported significant hotel openings, particularly in financial capital Shanghai and Beijing as it readies for the Olympics this summer.
InterContinental Hotels Group has opened 84 hotels in China since 1983, according to Mike Fegley, vice president of global sales from the Americas. InterContinental plans to open 40 more in the next seven months and has 107 hotels in the pipeline, he said, adding that the company plans on hiring 50,000 people in China over the next couple of years.
Marriott International, Hilton Hotels Corp. and Hyatt Hotels & Resorts also have numerous China projects to develop in the next few years.
Best Western has 30 properties in China, 14 under construction and several others under development, CEO David Kong said. "We're focusing on three major economic zones," he said. "They're selling very heavily with domestic travelers, and the intra-Asia travel is huge."
In addition to interest from corporate buyers, multibrand hotel companies also see the development of properties in China as an opportunity to make their brands known to the Chinese at the local level. IHG's Fegley said to expect 100 million outbound travelers from China in the next 10 years, and they'll be looking for hotels they recognize.
"Before you know it, there will be huge numbers of people coming from Asia to our country," Best Western's Kong said. "So, we're keen on making sure we have a quality brand."
Advito's Pruett said India followed closely behind China in client interest for establishing hotel programs, and buyers continue to face a much tougher supply situation there as compared with China. Inadequate infrastructure and red tape slows development in the country, hoteliers said.
"There's a tremendous amount of demand and limited supply," IHG's Fegley said. "There's about as many first-class rooms in India as there are in Orlando."
HRG's report said the current development rate means that it could take another 10 to 15 years before the market reaches saturation. Mumbai alone experienced a 37 percent increase in negotiated rates in 2007, according to HRG.
"The big game right now is who can announce more, but you can't sleep in a pipeline," said Martin Rinck, president and managing director of the Asia/Pacific region for Carlson Hotels Worldwide, which last year announced a partnership with Lotus Hotel Investment for a $1 billion private equity fund to further development in the region. "The need for quality accommodation in these emerging markets is still significant."
In Russia, Moscow remained the most expensive globally for corporate travel buyers, according to HRG. Although there is budget and midprice hotel development activity on the outskirts of the city, the market is largely dominated by the luxury tier. The high price of land also has slowed the development of Moscow hotel properties.
"We have some interest from developers, but we're trying to be very careful about that country," Kong said. The brand currently has one property in Russia, in St. Petersburg.
Of all the BRIC countries, in 2007 Brazil saw the largest increase in room rates, a growth of 15.8 percent, according to HRG. Rio de Janeiro is becoming increasingly popular as a destination for international conference and trade events, and its rates increased by 28 percent.
International travelers facing uneven rates also remains an issue in the emerging markets, although it is a diminishing problem, Advito's Pruett said. "In some parts of the world, there are still local deals that are done and the same rate is not made available to an international traveler," she said. "It's certainly not as prevalent as it has been."