Luxury Hotel Plans Abound As China's Economy Grows

Marriott International in May announced it would operate both a Ritz-Carlton and a J.W. Marriott Hotel in a sprawling multi-use development, slated for completion in 2007, in Beijing's central business district. The project is noteworthy as there are few other locations in the world Marriott believes can support its deluxe and upper upscale brands in such close proximity. The planned Ritz-Carlton will rival the Portman Ritz-Carlton in Shanghai as Marriott's flagship in China.

Marriott is not alone, however, in its confidence in the potential of the rapidly expanding China market for business travel. In the four months following the Marriott announcement, Starwood Hotels & Resorts Worldwide, Carlson Hotels Worldwide and InterContinental Hotels Group were among the multi-brand hotel companies to chime in with extensive expansion plans.

Developers have begun to look beyond Beijing and Shanghai to secondary cities as potential sites for new hotels, but Beijing and Shanghai remain the primary focus of attention for deluxe and upscale development. Starwood in July announced plans in 2006 to open both its first W Hotel in China, in Shanghai, and the Westin Beijing Financial Street Hotel. Carlson last month said it would open The Regent Shanghai next year, which would join a planned Regent in Beijing in 2006. IHG announced a deal for the InterContinental Moon Valley Beijing to open in 2007.

Fueling this rush of hotel development is the rapid pace at which the Chinese economy is growing. Gross national product is expected to jump 8.5 percent and 8 percent in 2004 and 2005, respectively, according to the American Express Bank Economics Unit. By contrast, GNP in Japan is expected to grow 4 percent this year and 2.5 percent next year, and the United States' GNP is expected to grow 4.5 percent and 3.4 percent in the same time periods. With economic growth comes increased business travel and greater demand for lodging.

Average daily rates in both Shanghai and Beijing soared in response to skyrocketing demand. The Deloitte Hotel Benchmark Survey this summer noted that between mid-2000 and mid-2004, ADR jumped a cumulative 46 percent in Shanghai and 29 percent in Beijing. By comparison, ADR gains from 2000 to 2004 in the United States are expected to reach a modest 6.8 percent, though off a much higher base rate.

"The Chinese economy really is so strong it's driving the robustness of the entire region," said Ritz-Carlton president Simon Cooper. "Strong developing economies attract business travelers from around the world who are seeking to be involved in that growth. What we build reflects our belief that travel to Asia overall and specifically travel to China will grow significantly in the coming years."

As the China market expands, Ritz-Carlton and other deluxe chains are racing to establish their brands as the pre-eminent global luxury provider. "A number of elements play into that, starting with location," Cooper said. "Just because one is in Beijing doesn't mean one is in the right location in Beijing. You need the right project with the right partners. Then you have to build the kind of hotel that is going to create the number-one positioning we seek everywhere."

Rather than freestanding buildings, hotels planned in China at high-end price points almost always are parts of mixed-use developments that include both commercial and retail components.

"For our typical customer, having offices around is beneficial because it drives business," Cooper said, "but retail and residential are important because they add to the convenience and sense of activity."

For Starwood, the risk of building a W is great since there is no boutique hotel tradition in China. "New York, London and Miami have long had a stronghold on the world's top design hotels, but we see enormous potential in developing the genre globally, and there's probably no more dynamic market in the world today than China," said former chairman and CEO Barry Sternlicht. Applying that logic, Starwood has announced plans for a W in Hong Kong.