April 2009 VOL. 2

Exception to the Rule?
Hotel development continues in Asia

The fastest growing tourism destinations over the next decade will be in Asia, and there are predictions that China will emerge as the No.1 inbound tourism market within 10 years, overtaking France, Spain, and the United States. By the end of next year, international visitor arrivals into Asia are expected to more than double to 500 million people.

Industry experts believe the short-term and long-term economic outlook for most Asian countries is better than countries in other regions, making Asia an attractive locale for hotel investment – both development and acquisition.
“We believe that Asia will be one of the least-affected areas by the economic downturn as the region’s financial systems are relatively resilient, following improvements made after the 1997 financial crisis in Asia,” says Matthew Sparks, senior vice president of global development for Fairmont Raffles Hotels International (FRHI), which owns landmark properties such as The Plaza Hotel in New York and The Savoy in London. “Asia is also likely to see rapid recovery once the economy begins to rebound.”

Asia’s economic resilience has compelled FRHI to expand all three of its brands – Raffles, Fairmont, and Swissôtel. “The Asian market is less saturated with international brands and has lower barriers to entry compared to the more-developed regions,” contends David Roberts, executive vice president of Asia Pacific operations for FRHI.

FRHI is just one of several global hotel chains that are aggressively expanding in Asia. From luxury and upscale brands such as Westin and Intercontinental to limited service brands like Best Western and Holiday Inn Express, investment in Asia’s hospitality segment continues to be strong.

Popular destinations
Today, Asia ranks as the second most popular destination in the world, receiving 20 percent of all international travel, according to the recently published Hospitality Vision report from global consulting firm Deloitte.

In 2008, 188 million people visited Asia, spending roughly $427 million a day, according to the United Nations World Tourism Organisation (UNWTO). International travel activity to Asia declined 3 percent during the second half of 2008 after increasing more than 6 percent during the first half. This year, UNWTO expects activity to be positive, albeit much slower than previous years. Even so, Asian destinations will receive about $10 billion in tourism revenue over the next three years, according to the Pacific Asia Travel Association (PATA).

“The impact on Asia has been less severe,” Roberts says. “Long-haul travel into the region has been somewhat compensated by regional travel, fueled by value travel deals and lower airfares in the region. Corporate travel and groups have diminished, but leisure travel has not seen as significant a reduction as travelers are taking advantage of the increased value hotels in the region are providing.”

The most recent data compiled by STR Global indicates Asia-Pacific hotels are suffering from double-digit declines in occupancy, average daily rate (ADR), and revenue per available room (RevPAR). In February 2009, the region’s occupancy dropped 12.1 percent to 59.0 percent; ADR declined 21 percent to US$114.82; and RevPAR fell 30.5 percent to US$67.70. (See table below for specific country metrics.)

Sparks says much of the decreased demand can be attributed to Western-sourced business, specifically business that originates from the U.S. and, most significantly, the banking and financial sector. “Historically, this has been one of the higher-rated segments, so the impact of this drop in business was more pronounced,” he explains. “Intra-Asian business, while lower, seems to be holding up, and we are expecting a bit of a rebound as we get further into the year.”

Intercontinental bookings have decreased for Best Western International, which currently has 130 hotels and more than 22,000 rooms in various stages of rebranding, construction, and operation in 14 countries throughout Asia. However, intra-Asia travel has been “largely unchanged,” according to Glenn de Souza, vice president of international operations – Asia.

de Souza contends travelers today are staying closer to home, looking for hotels that offer the best value and flying with low-cost air carriers. He says Americans make up the largest contingent of guests at Best Western properties in Asia – roughly 60 percent to 70 percent – but Asian travelers make up 50 percent of total revenue in the region.

Growth in all segments
Sparks says the growing wealth and sophistication of Asian consumers have led to the expansion of luxury brands throughout Asia. And he expects continued growth in luxury hotels and resorts in over the next two years.

For example, Raffles has properties under development in China and Indonesia, while Fairmont has projects under construction in India and China. Most recently, Fairmont opened the Fairmont Singapore, a 769-room property divided between two towers in the Raffles City complex.

Similarly, Intercontinental Hotel Group (IHG) is pushing forward with its growth in Asia under several brands, including Holiday Inn; Holiday Inn Express; Intercontinental; Crowne Plaza; and Hotel Indigo. The U.K.-based company was one of the first to enter Asia – it has been in India since 1962 and China since 1984 – and it will require 30,000 new employees in the Asia-Pacific region over the next two to three years.

The Intercontinental hotel brand currently has 40 existing hotels and 36 new hotels opening in next three years, including 11 new resorts. The brand’s Greater China portfolio is expected to almost triple to 18 hotels by 2010, following last year’s opening of InterContinental Beijing Beichen, InterContinental Qingdao, and InterContinental Dalian. It has nine hotels in the pipeline in Vietnam.

Growth is not limited to the luxury segment, however. Crowne Plaza, for example, is one of fastest-growing upscale hotel brands in Asia-Pacific with 66 existing hotels and 65 in the pipeline. A new flagship hotel Crowne Plaza Changi Airport opened in Singapore last year, along with Crowne Plaza International Airport Beijing in China and nine co-branded ANA Crowne Plaza hotels in Japan.

However, Mike Batchelor, managing director of investment sales – Asia for Jones Lang LaSalle Hotels, says limited-service hotel brands currently boast the most active expansion plans in Asia. For example, the first Ibis hotel opened in Singapore just a couple of weeks ago, following openings in Thailand and Indonesia. And in China, Jin Jiang Inn launched a new, more-economical brand – Bestay Hotel Express.

Best Western plans to have 200 hotels and resorts and 50,000 rooms in key destinations in Asia by 2010, says de Souza. The chain is particularly focusing hotel development in Southeast Asia, North Asia, the Middle East, and Indochina. It is already the largest hotel chain in North Korea and will become the largest hotel chain in Indonesia with 20 hotels by 2010.

“One of our primary strategies is to establish Area Development Offices to develop hotels in targeted markets, including the Philippines, Malaysia, Japan, Korea, Indonesia, Laos, Vietnam, and the Middle East (UAE-based),” de Souza says.

de Souza admits the global crisis has affected decision-making on new hotel investment and development projects. However, he does not expect any current Best Western development projects will be postponed.

“In a sense, risk is lowest during a crisis because we believe there’s not much to lose,” de Souza says. “We believe that it’s a good time to invest as development costs have fallen, and we have the expectation of excellent returns as the economy picks up.”

Performances of Key Countries in February (all monetary units in local currency):

Country	Occupancy	% change	ADR	% change	RevPAR	% change
Australia	75.3%	-7.2%	AUD172.61	-2.9%	AUD129.96	-9.9%
China	44.9%	-9.0%	CNY698.25	-15.9%	CNY313.80	-23.5%
India	64.2%	-21.1%	INR8485.74	-18.0%	INR5446.21	-35.3%
Japan	69.2%	-10.1%	JPY12773.81	-7.3%	JPY8845.03	-16.6%
Singapore	70.7%	-6.3%	SGD260.74	-19.7%	SGD184.35	-24.7%

*Percentages are increases/decreases for February 2009 vs.  February 2008.  Source: STR Research