Chains Grow Hotels In China

Starwood Hotels & Resorts Worldwide this month announced it would operate a new hotel and serviced apartment complex in the emerging Pudong district of Shanghai. Ritz-Carlton Hotel Co. in December announced it also had agreed to manage a major hotel, its second Shanghai property, in Pudong.

While global hotel companies continue to expand their distribution in Shanghai and Beijing—China's other premier business destination—another wave of hotel development is occurring simultaneously. While these projects may not be as high-profile, Starwood and Ritz-Carlton along with Hilton International and Shangri-La Hotels and Resorts last month each announced deals to manage hotels in China that extend beyond the Shanghai-Beijing axis to Shenzhen, Guangzhou, Nanjing, Wenzhou and other secondary destinations. These lesser-known cities rapidly are gaining in prominence as travel destinations as Western business interests penetrate further into China.

Hong Kong, meanwhile, this month reported that 2004 international arrivals were up 40 percent over 2003, indicating that the destination, long known as the doorstep to mainland China, had fully recovered from the SARS crisis.

As buyers find they need additional room nights in Shanghai, Beijing and, increasingly, a number of secondary markets, they tend to fall back on existing chain relationships because the comfort level already is there. Where the number of required room nights is insufficient to warrant a negotiated rate, travel buyers will lean on their national account manager for an attractive rate or rely on a consortia rate. Likewise, travelers tend to feel a greater comfort level with hotel brands they know, especially in secondary and tertiary cities where they may be traveling for the first time.

Starwood will manage the new Shanghai hotel under its upscale Sheraton umbrella. The 509-room hotel and 150-serviced apartments are scheduled to open in 2008. "Like many of the new projects, the Sheraton Shanghai Hotel & Residences, Pudong, is part of a mixed-use development that includes offices and residences in two other towers," said Miguel Ko, president of Starwood Asia-Pacific. Developers like the idea of incorporating multiple uses into one project as a way of minimizing their risk. A hotel component that carries a global brand name also draws attention to the project, while restaurants and bars help ensure the facilities will be used beyond business hours.

Serviced apartments, which are popular throughout Asia, typically appeal to new arrivals who will be in the destination for an extended stay. Minimum length of stay is usually 30 days. Accommodations feel highly residential, but come with access to room service, the business center and fitness facilities.

The second Shanghai Ritz-Carlton will be in Pudong's financial area, not far from the site of the new Shanghai World Exposition, which in 2010 will host an international trade and culture exhibition. "Shanghai has evolved to the point where Pudong is its own destination within the larger city," according to Ritz-Carlton vice president and China area general manager Mark DeCocinis. Pudong is located across the Huangpu River from Puxi, the city's original central business district. "Considering rush-hour traffic, it can take a business traveler 45 minutes to get to appointments to Pudong. Accordingly, business travelers reasonably want to stay close to where their business is."

As Puxi hotels increasingly have to share travelers with properties in Pudong, they have responded with new services and upgraded facilities. In the case of Ritz-Carlton's 10-year-old flagship Portman Shanghai, this has meant an increased focus on the group market. "We've developed a strong small to midsize meetings business with most groups under 50 people," DeCocinis. "Most of these bookings grow out of existing relationships with transient clients where we're in the preferred program."

First-class meeting space, whether in Puxi or Pudong, is in high demand and, therefore, difficult to book, according to Paul Kennedy, managing partner for KPMG's China operations. "Especially for last-minute bookings, it'll be a balancing act between getting the meeting space you need and booking a sufficient number of guest rooms," Kennedy said. "Senior-level business travelers remain acutely interested in China because of the high level of activity going on here." KPMG last year held its international partners meeting in Shanghai. Kennedy said that he tries to follow KPMG's hotel program whenever possible, but in light of tight availability of hotel rooms has authority to act independently as needed.

The Portman Ritz-Carlton in December began managing a cruise ship that corporate groups can charter for dinner cruises on the Huangpu. "It gives attendees a special perspective on the city," said director of sales and marketing Lulu Gesmundo-Uy, "and because the hotel is providing the food and beverage, meeting planners can be assured the standards are consistent."

Outside Shanghai and Beijing, Ritz-Carlton in 2007 is scheduled to open a 245-room hotel in Shenzhen and a 353-room property in Guangzhou, in both cases adjacent to these cities' convention centers. Hilton by year-end is scheduled to open a 500-room hotel in Sanya on Hainan Island, geared to the group market. By contrast, Starwood and Shangri-La will open transient business hotels. Starwood in 2009 will open a 300-room Westin in Nanjing, the largest city in the Yangtze River delta after Shanghai. Shangri-La has targeted Wenzhou on China's east coast for a 400-room hotel to open in 2008.

"Given the growth of these and other secondary cities, this is where we've begun focusing our development efforts," said Shangri-La chief marketing officer Martin Waechter. "As China's economy rapidly develops, more Western business travelers will be visiting cities beyond Beijing and Shanghai. They won't want to compromise their service expectations, so the need for appropriate accommodations will grow accordingly."

Shanghai and Beijing remain these hotel companies' flagship locations. "In our case, it's the reputation that we've built for service delivery in Shanghai that is driving interest among owners and developers," said Simon Cooper, Ritz-Carlton president and COO.