Produced in conjunction with the China Tourist Hotel Association 2014 Hotels & Hospitality Group. China Hotel Market Overview 2014

Transcription

1 Produced in conjunction with the China Tourist Hotel Association 214 Hotels & Hospitality Group China Hotel Market Overview 214

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3 China Hotel Market Overview China Hotel Market Survey Results 1.1 Survey Background Recent statistics of global travel trends project that the number of outbound Mainland Chinese tourists will double from an estimated 1 million in 213 to 2 million by 22. This new emerging class of vacationers continues to frequent nearby Hong Kong and Macau, but Mainlanders are also increasingly growing adventurous, seeking new holiday destinations further afield in Europe and North America. However, this strong tourism growth is not limited to just outbound. The domestic market is also gaining momentum amongst local Chinese travellers. For instance, 'Golden Week' the seven-day national holiday results in in millions of Mainland Chinese travelling nationwide every year. The China Tourism Hotel Association (CTHA) 214 survey again focuses on the performance of domestic market hotels in Mainland China. As per previous years, the 214 survey was again distributed to all CTHA members with responses received from 269 hotels, representing a total of 55,528 guest rooms. Of all the hotels polled, JLL have geographically divided the properties into regions of which 29.1% were located in East China, 23.4% in Central China, 22.2% in West China, 13. in North China and the remainder concentrated in South China (12.3%). In terms of hotel quality by grade, 49.6% were five-star hotels, 33.1% four-star hotels, 11.4% three-star hotels and the remaining 5.8% were hotels of two-star rating or lower in the 214 survey. In regards to the ownership structure of the hotels, 49.2% of properties surveyed were state-owned, 39.4% privately owned and 11.4% were held under other ownership structures, such as joint ventures and foreign-owned enterprises. The operational model of hotels reported that 66.3% were owner-operated and managed, 23. running under a third party management agreement, 6.5% franchised and 4.4% leased or operated under a different management model. Across all surveyed hotels, there were 51,256 staff employed full-time (82.8%), 6,247 staff working in part-time roles (1.1%) and 4,45 were interns (7.1%). Of all hotels sampled, just over 46% commenced operation after 26. Results differed widely from the 213 survey which showed 34.8% for the same timeframe. Similarly, hotels that opened prior to 1996 represented 12.3% in the latest 214 survey while last year it was almost double at 22.6%. The latest results show that the 214 survey polled a much higher proportion of new hotels compared to previous surveys. Figure 1: Hotel Opening Year 5 45% 46.1% 4 35% 3 25% 15% 1 5% 4.1% 5.2% % 14.1% 12.3% Before Present Undisclosed

4 4 JLL Hotels & Hospitality Group 1.2 Hotel Performance In consideration of the data from chart 1-2, actual hotel performance has been assessed for the calendar years 212 and 213. In 214, the results are based on forecasts provided by respondents. After reviewing the results, we note that the general performance for hotels across Mainland China has decreased substantially in terms of Average Daily Rate (ADR) and Revenue per Available Room (RevPAR). In 213, the ADR of sampled hotels wasrmb 4, 2.4%,below that of 212. A substantial pipeline of new hotel supply continues to weigh down on hotel performance and the growth rate of inbound tourism has declined on a slower economic environment. Overall occupancy of surveyed hotels decreased from 63. in 212 to 6. in 213. Due to a fall in occupancy and ADR, RevPAR decreased 7. to RMB 24 in 213. The survey reported room nights available totalling 81,733 nights in 212, rising to 83,39 in 213. Forecasts for 214 suggest an increase of 1,762 rooms in 213. In terms of room nights sold, the 214 forecast totalled 51,844 rooms, a 2.2% increase on last year. Overall, little variation has been recorded over the assessed 3-year period in terms of room nights sold. Based on overall hotel performance at a regional level, West and North China recorded declines in occupancy. West China is expected to achieve the strongest growth in ADR (up RMB 56) whilst Central and Northern China may witness falls of RMB 3 and RMB 13 respectively. As one of the key criteria to measure the average market performance of hotels, RevPAR is affected by occupancy and ADR levels. According to the respondents, hotel trading performance in 214 is likely to moderate or remain flat. Occupancy is expected to remain at around similar levels to the last survey. However, ADR is forecast to increase 2.4% to RMB 49 while RevPAR remains flat at RMB 241. Figure 2: Hotel Performance: ADR, RevPAR & Occupancy ( *) Figure 3: Hotel Performance: Room Nights Available & Sold ( *) RMB (Yuan) % 6 55% Rooms Nights 9, 8, 7, 6, , 2 45% 4, , 1 35% 2, 5 3 1, * ADR RevPar Occupancy 25% 212 Room Nights Available * Room Nights Sold *Estimates provided in 214 survey *Estimates provided in 214 survey

5 China Hotel Market Overview Figure 4: Surveyed Hotel Performance by Region ( *) West China 214* Occupancy 51.6% 51.9% 55.2% ADR RevPAR North China 214* Occupancy 59.9% 64.5% 65.6% ADR RevPAR East China 214* Occupancy % 53.7% ADR RevPAR Central China 214* Occupancy 57.9% 57.3% 63.2% ADR RevPAR North China East China South China 214* Occupancy 57.2% 56.4% 59.1% ADR RevPAR Central China South China West China *Estimates provided in 214 survey Note: ADR does not include breakfast and service charge Unbalanced regional data is caused by varying sample sizes and star rating distribution. The report provides average values for each region. All figures rounded.

6 6 JLL Hotels & Hospitality Group 1.3 Business Mix Among the surveyed hotels, Corporate FIT travellers were still the leading segment in the business mix, making up 39.2% in 212 and slightly higher in 213 (39.8%). In terms of 213 leisure tourists, there was a minor change recorded in the proportion of leisure FIT travellers as compared to 212, rising to 21.3% from 2.1%. Steady demand from the leisure traveller segment has led to less price sensitivity. The results identified that guests tend to choose higher quality hotels with personalised service. In addition, private and quiet living environments and the presence of local cultural activities are also preferred. In comparison, long-stay guests and other segments largely remained the same. The long-stay segment accounted for 5.3%. Other segments accounted for 6.9%. Figure 5: Business Mix ( ) Long-stay Guests Others Leisure Groups Corporate Groups 1.4 Revenue Mix There were no major differences between 212 and 213 data while 213 performance recorded only a slight increase in room revenue and restaurant & bar revenue. A fall in meeting & banquet revenue was however noted. The 214 forecast highlights some key changes with room revenue rising to 5.9%, meeting & banquet revenue up to 25.1% and unsurprisingly, restaurant and bar revenue down to 15.. This change in revenue mix is a result of recently changing demand patterns by hotel patrons. Other revenue (potentially including revenue sources such as mini bar, entertainment, spa etc.) shows a persistent declining trend over time. When analysing the revenue mix by star rating, we note the higher the rating of a hotel, the smaller the divergence between room and F&B revenue. As shown in the chart, there is likely to be limited change in the estimated revenue mix between 212 and 214. Room revenue of five-star hotels is estimated to increase by.9% to 46.3% in 214 but revenue remains stable in four-star hotels. Both two and three-star hotels are expected a fall around 5%. F&B revenue in the meeting & banquet category is stable in five-star properties but shows some variations in four-star, falling 1 percentage point to 28.1% in 214. Both two and three-star hotels are expected to witness an increase in restaurant & bar revenue but five-star hotels may record a slight decline. Leisure FIT Corporate FIT 5% 1 15% 25% 3 35% Figure 6: Revenue Mix ( *) Figure 7: Revenue Mix by Star Rating ( *) 214* 5.9% 25.1% % 22.2% 18.3% 1.7% % 17.6% 11.1% Rooms Revenue F&B Revenue (Meeting and Banquent) F&B Revenue (Restaurant and Bar) Other Revenue * * * * 5-star 4-star 3-star 2-star & others Rooms Revenue F&B Revenue (Meeting and Banquent) F&B Revenue (Restaurant and Bar) Other Revenue *Note: The 214 data is estimated data. Revenue from hotels opening in or after 212 was not included in revenue mix calculation *Estimates provided in 214 survey *Note: The 214 data is estimated data *Estimates provided in 214 survey

7 China Hotel Market Overview Market Outlook for 213 Operating Outlook In this year s survey, we asked the hotels to share their outlook on occupancy, ADR, operational cost, the cost composition and overall competitive pressure. The results are shown in the following tables: With the decline in occupancy and RevPAR in 213, the outlook for 214 remained pessimistic based on hotels trading expectations and the large supply pipeline set to enter the market, with 59.1% suggesting that occupancy will rise. However, 18.6% of surveyed hotels anticipate an occupancy decline. We note that this is substantially lower than the 38.3% of respondents recorded in the 213 report. Among the results, 14.5% predicted that the occupancy rate would remain unchanged. 55. of respondents predicted that the ADR would rise in 214, a 17.2 percentage point change from last year s survey. Among the results, 21.9% suggested that it would actually decline, similar to the rate recorded in 213. Hotel performance forecasts in 214 were relatively upbeat compared to the results obtained last year. Operational costs are estimated to rise or remain stable in 214 at 77.6% of surveyed hotels. This is 4.1 percentage points above the 213 results. The significant trend in this sample data is the overwhelming perception of increased operating costs in 214, which rise by 26.pp from last year. According to the surveyed responses with regards to the cost composition mix, most hotels forecasted that expenses across the categories of food, beverages, labour, energy, sales & marketing and 'others' would remain at a similar proportion to 213. More than 88.8% of respondents indicated that the hotel s competitive market pressure would be higher this year. The main reason was increasing operational costs. Only approximately 4.5% of respondents anticipated the competitive pressure in the marketplace to decrease. Other respondents indicated that it depends on implementation of government policies. Table 1: Occupancy Forecast ( ) Change Increased 38.8% 59.1% +2.3pp Unchanged 2.9% 14.5% -6.4pp Decreased 38.3% 18.6% -19.7pp Undisclosed % +5.8pp Note: 213 forecast from CTHA 213 survey results (total 224 hotels) Table 2: ADR Forecast ( ) Change Increased 37.8% pp Unchanged 35.7% 15.2% -2.5pp Decreased 24.5% 21.9% -2.6pp Undisclosed % +5.8pp Note: 213 forecast from CTHA 213 survey results (total 224 hotels) Table 3: Operating Cost ( ) Change Increased 37.8% 63.8% +26.pp* Unchanged 35.7% 13.8% -21.9pp Decreased 24.5% 22.4% -2.1pp Undisclosed 2. NIL -2.pp Note: 213 forecast from CTHA 213 survey results (total 224 hotels) * Percentage point Table 4: Cost Composition ( *) Food 27.9% 27.4% 26.2% Beverages 6.6% 5.9% 5.6% Labour 31.6% 34.4% 34. Energy 14.1% 14.3% 13.3% Sales & Marketing 7.5% 6.9% 6.9% Other 12.3% *Estimates provided in 214 survey Table 5: Competitive Pressure ( ) Change Increased % -.2pp Unchanged 5.5% 6.7% +1.2pp Decreased 1.6% 4.5% +2.9pp Undisclosed 3.9% NIL -2.9pp Note: 214 forecast from CTHA 213 survey results (total 224 hotels)

8 8 JLL Hotels & Hospitality Group Guest Demand Drivers An analysis of the surveyed results on guest demand drivers shows that large-scale meeting / activities / exhibitions account for the majority of lodging demand (3.1%) in 214, maintaining the same level as reported in last year s survey. Demand driven by major tourism project developments / improvements increased by 1.2 percentage points to 25.4%. The number of respondents choosing expansion of developments / high-tech zones and increasing office supply as the demand drivers shows a rise of 1.1 percentage point higher than that of 213. Government generated demand recorded a decline of only.4%. Government Initiatives Demand Of the surveyed results for the requirement of key government initiatives, 59. of respondents suggested that more promotion for tourism is needed. This was by far the leading category, significantly outweighing the second largest initiative of supportive policies (18.7%). Respondents suggested other notable initiatives included the attraction of more investment (6.7%) and improving infrastructure (3.3%). Table 6: Guest Demand Drivers ( ) Large scale meeting / activities / exhibitions 3.2% 3.1% Major tourism project developments / improvements 24.2% 25.4% Expansion of development / high-tech zones 15.2% 15.2% Development and expansion of transportation hub % Increased office supply 9.7% 1.8% Increased government demand 5.8% 5.4% Source: CTHA 214 survey results (Total 269 hotels) Note: 214 forecast from CTHA 213 survey results (total 224 hotels) Operational Challenges Opinions on future operational challenges were also surveyed. In recent years, the large influx of new hotels into Mainland China has resulted in higher employee turnover, which consequently increased recruitment and training costs. More competitive remuneration packages can be offered to attract qualified employees. 67.7% of surveyed hotels suggested the key operational challenge in 214 is the lack of room demand, which significantly outweighed all other categories with the industry-wide view that oversupply (11.2%) is also a major challenge. Increased operational costs and economic uncertainty represent a combined 16. of total respondents. Figure 8: Government Initiatives Demand (214) Figure 9: Operational Challenges (214) Improve commercial facilities 1.1% Improve tourism attractions 2.6% Improve infrastructure 3.3% Attract more investment 6.7% Improve MICE facilities 1.1% Increased customer's expectation,1.5% Other challenges, 2.6% Economic uncertainty, 6.3% Increased operational costs, 9.7% Owner's Expectation too high, 1.1% Bring more conventions / events 7.4% More supportive policy on hotel market 18.7% More promotion for tourism 59% Oversupply, 11.2% Under-demand, 67.7% Source: CTHA 213 survey results (total 269 hotels)

9 1.6 Market Outlook With regards to the medium term outlook, 53.9% of sampled hotels are very optimistic about the future. Those optimistic and holding a neutral bias was 21.9% and 12.7% respectively. However, not all respondents were upbeat about future trading conditions with 1.8% pessimistic and under 1% very pessimistic. Figure 1: Three-Year Market Outlook ( ) Very Pessimistic,.7% 1.7 Key Survey Findings In summary, the results of the 214 CTHA survey are as follows: The overall performance of hotels in 213 was down. While market conditions are estimated to improve marginally over the medium term, 214 may still remain a tough year for hoteliers.; Currently, Corporate FIT account for the highest overall demand and this trend is set to continue. Leisure FIT demand has increased for three consecutive years whilst group leisure travellers have continued to decline.; Pessimistic 1.8% Neutral 12.7% Optimistic, 21.9% Very optimistic, 53.9% Room and F&B revenue had a relatively equal share of total revenue for four and five-star hotels. Rooms revenue forms a major part of three-star or lower rating hotels total revenue; Operational costs continued to rise in 213. According to the survey, a lack of room demand is the biggest challenge faced by hotels, followed by oversupply and increased costs; and The 214 survey concluded that the majority of hotels (53.9%) held very optimistic views on the future of the Mainland China s hotel market. This was a considerably positive turnaround compared to 213. This strong improvement in sentiment may be partly due to the government s reform blueprint which has enhanced local hotel trading sentiment and progress on rebalancing the economic outlook. In direct contrast, measures introduced to curb conspicuous consumption have had a negative impact on the hotel sector overall, particularly for luxury hotels food and beverage revenue.

10 1 JLL Hotels & Hospitality Group 2. Mainland China Hotel Market Supply & Demand Factors 2.1 Selected Cities Based on China 5, JLL s World-Winning Cities Research Programme focusing on 5 cities across Mainland China that will offer substantial commercial real estate opportunities over the next decade, we have selected 38 cities of Tiers 1, 1.5, 2, 3, and 3.5, and three other uncovered provincial capitals that we think are of great importance to understand the Mainland China s hotel market. To analyse the supply and demand factors of the hotel market, we will review the China market first and then take a closer look at the following 41 cities. Table 7: 41 Cities Tier 1 Tier 1.5 Tier 2 Tier 3 Tier 3.5 Other Provincial Capitals Beijing Chongqing Hangzhou Hefei Zhengzhou Kunming Nanchang Taiyuan Lhasa Shanghai Tianjin Wuhan Qingdao Ningbo Hohhot Shijiazhuang Urumqi Yinchuan Guangzhou Chengdu Shenyang Jinan Changsha Changchun Wenzhou Haikou Xining Shenzhen Suzhou Dalian Dongguan Xiamen Foshan Fuzhou Lanzhou Nanjing Wuxi Xi an Nanning Harbin Guiyang Note: Ranking according to China 5, JLL

11 China Hotel Market Overview China Economic Review GDP Growth Over the past 1 years, Mainland China s Gross Domestic Product (GDP) has been growing (compound average annual growth or CAAG) at 15.1%. The GDP growth rate dropped 4.6 percentage points in 28, mainly due to the global financial crisis, and has not rebounded back to the 27 level since. In 213, the GDP growth rate hit the lowest point over the past decade at 7.7%. While credit-fuelled investment growth slows, the capital stock will make a much lower contribution to growth. In addition, the shift towards the service sector as the economy matures and becomes more consumer-oriented will lead to a slowing in productivity growth. Mainland China will also feel the effects of the one-child policy with the working age population starting to decline from 217. Increases in participation and continued urbanization will help to support the effective labour supply. According to the forecast by Oxford Economics, China s GDP will grow at around 7. annually over the next decade Real Estate Supply Pipeline Hotel development throughout Mainland China is often part of a mixed-use real estate project; therefore, real estate investment reflects the hotel investment, or the future hotel supply, from a macro level. Real estate development has been soaring in China, at a 1-year CAAG of 23.3% from 24 to 213. The year-on-year (Y-o-Y) growth rate peaked in 21 at 33.2%. In 213, China s real estate investment volume reached RMB 8,61.3 billion, a 19.8% increase from 212. Figure 11: GDP: National (24-218*) GDP (RMB bn) 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, 24 Y-o-Y Real Growth Rate (%) 18% * 215* 216* 217* 218* 16% 14% 12% 1 8% 6% 4% 2% GDP - RMB bn Real Growth Rate (%) Source: China Statistics Bureau, * forecast from Oxford Economics Figure 12: Real Estate Investment Volume (24-213) Real Estate Investment (RMB bn) Y-o-Y Change (%) 9, 45% 8, 4 7, 35% 6, 3 5, 25% 4, 3, 15% 2, 1 1, 5% Real Estate Investment (RMB bn) Y-o-Y Change (%) Source: China Statistics Bureau

12 12 JLL Hotels & Hospitality Group Visitor Arrivals The fluctuations in growth rates of international visitor arrivals are directly related to the international economic environment as well as other factors. Growth was negative in 28 (-1.4%) and 29 (-2.7%) due to the global financial crisis, and again in 212 (-2.2%) and 213 (-2.3%) when the European credit crisis peaked. In 28, the tightened visa policy due to the Olympics in Beijing also accounted for the drop in this growth rate. Conversely, the 21 Shanghai Expo helped draw a substantial volume of international visitors and yield the highest growth rate (5.8%) since 26. Domestic visitor arrivals over the past 1 years have seen some fluctuations as well, but recorded steady growth overall. While domestic visitor arrivals endured the lowest growth rate (6.3%) of the past 1 years in 28, the figure increased at double-digit rates for the following 5 years. In 213, domestic visitor arrivals reached 3,26 million, a 1.3% increase from 212. Figure 13: Domestic & International Visitor Arrivals (24-213) Visitor Arrivals to China (mil) Y-o-Y Change (%) 4, 3,5 35% 3 3, 25% 2,5 2, 15% 1,5 1 1, 5 5% % Domestic Visitor Arrivals (mil) International Visitor Arrivals (mil) Y-o-Y Change (%) - Domestic Y-o-Y Change (%) - International Source: China National Tourism Administration Cities Tertiary Industry The maturity of a city s tertiary industry indicates the city s tendency to receive higher-budget travellers, as companies from the tertiary industry generally bear higher traveling budgets compared to those from the secondary industry. As shown in Figure 14, 19 of the 41 cities realised more than half of its GDP from the tertiary industry, including four Tier 1 cities, three Tier 1.5 cities, five Tier 2 cities, two Tier 3 cities, and five Tier 3.5 cities. No correlation is seen between the city level and its tertiary industrial contribution, as a city s industrial composition is a result of the city s historical positioning and its current economic reformation policy. The five cities with the most Y-o-Y growths in the tertiary industry were Nanchang (2.6%), Urumqi (15.3%), Guiyang (14.6%), Lanzhou (13.6%), and Guangzhou (13.3%). Guangzhou is the only Tier 1 city amongst all other Tier 3 or Tier 3.5 cities. Figure 14: Tertiary Industrial Contribution to GDP: 41 Cities (213) Tertiary Industry/GDP (%) Y-o-Y Change (%) Beijing Haikou Guangzhou Hohhot Shanghai Urumqi Shenzhen Guiyang Jinan Taiyuan Nanjing Dongguan Hangzhou Tertiary Industry/GDP (%) Y-o-Y Change (%) Xiamen Xi'an Harbin Lanzhou Chengdu Qingdao Kunming Tianjin Nanning Wuhan Wenzhou Fuzhou Wuxi Suzhou Xining Ningbo Shijiazhuang Dalian Chongqing Zhengzhou Chashang Changchun Nanchang Hefei Shenyang Foshan Yinchuan 25% 15% 1 5% -5% -1-15% - Source: Various Statistics Bureaus Note: Data of Lhasa is not listed due to the lack of published result.

13 China Hotel Market Overview Foreign Direct Investment The actual foreign direct investment (FDI) utilized by a city tells how many foreign companies or foreign invested projects the city attracts, which can be a source of high-end corporate demand generator. The four cities with over USD 1 billion of actual utilized FDI in 213 were Tianjin, Shanghai, Dalian, and Chongqing, in descending order. While the former three cities were still seeing double digit Y-o-Y growth, Chongqing s actual utilized FDI merely grew at.2% in 213. The top 5 cities with the highest Y-o-Y growth rate of actual utilized FDI in 213 were Hefei (96.), Lanzhou (44.), Guiyang (32.9%), Xi an (26.3%) and Wenzhou (25.9%). Except for Xi an and Hefei, which are Tier 2 cities, the remaining three cities are Tier 3 or Tier 3.5 cities. Figure 15: Actually Utilized FDI Volume: 41 Cities (213) Actual Utilized FDI (USD bn) 18 Y-o-Y Change (%) Tianjin Shanghai Dalian Chongqing Chengdu Suzhou Beijing Shenyang Qingdao Shenzhen Hangzhou Wuhan Guangzhou Changchun Nanjing Dongguan Changsha Wuxi Zhengzhou Ningbo Xi'an Nanchang Foshan Hefei Harbin Xiamen Kunming Hohhot Fuzhou Jinan Shijiazhuang Taiyuan Nanning Guiyang Haikou Wenzhou Urumqi Yinchuan Lanzhou Xining - Actually Utilized FDI (USD bn) Y-o-Y Change (%) Source: Various Statistics Bureaus Note: Data of Lhasa is not listed due to the lack of published result.

14 14 JLL Hotels & Hospitality Group Transportation Infrastructure Development Among the 41 cities, only Suzhou and Dongguan do not have any airports while Beijing and Shanghai each have two. The four Tier 1 cities and Chengdu ranked top five in terms of airport passenger throughput. Beijing and Shanghai achieved 88.2 and 82.8 million of air traffic passengers respectively, far ahead of the balance. However, western-region cities, such as Kunming, Xi an, and Chongqing followed along, ranking 6th to 8th places respectively. In particular, Kunming s airport throughput realized a 23.8% Y-o-Y growth, benefiting from the opening of the new Changshui International Airport in June 212. Figure 16: Airport Throughput: 41 Cities (213) Airport Throughtput (mil) Y-o-Y Change (%) Beijing Shanghai Guangzhou Chengdu Shenzhen Kunming Xi'an Chongqing Hangzhou Xiamen Chashang Wuhan Urumqi Nanjing Qingdao Dalian Zhengzhou Shenyang Haikou Guiyang Harbin Tianjin Fuzhou Nanning Jinan Taiyuan Nanchang Changchun Wenzhou Hohhot Lanzhou Hefei Ningbo Shijiazhuang Yinchuan Wuxi Xining Lhasa Foshan -5 Airport Throughtput (mil) Y-o-Y Change (%) Source: Civil Aviation Administration of China Note: Suzhou and Dongguan are not included due to lack of airports.

15 China Hotel Market Overview Hotel Demand Drivers Hotel demand can be segmented by travel purposes, including corporate, Meetings, Incentives, Conventions, Exhibitions (MICE), and leisure. Each demand segment can be driven by different infrastructure or represented by various indicators Corporate Demand Drivers Commercial real estate, especially high-quality office buildings and business parks, are often indicators of corporate demand. Supply and demand of these commercial properties can show a city s potential corporate demand. Grade-A Office Buildings The tenants of Grade-A office buildings are usually renowned multinational firms or industry leaders, which are an important source of corporate demand for hotels generally. Figure 17 shows the Grade-A office stock and vacancy level of the 2 cities tracked by JLL. By year end 213, the four Tier 1 cities and the uprising Tier 1.5 city Chengdu were leading the stock levels among all the 2 cities. It is forecasted that in three years, Grade-A office stock in Changsha will go up by 873.8%, Shenyang 444.2%, Chongqing 24.4%. Moreover, by the end of 216, Shenzhen will replace Guangzhou to have the third largest Grade-A office stock. Figure 17: Grade-A Office Stock: Recorded Cities (213 & 216*) Grade-A Office Stock (' sqm) Vacancy Rate (%) 1 75% 5 25% 1, 8, 6, 4, 2, Beijing Shanghai Guangzhou Shenzhen Chengdu Dalian Hangzhou Xi'an Suzhou Wuhan Nanjing Chongqing Ningbo Xiamen Zhengzhou Shenyang Tianjin Qingdao Wuxi Changsha Total Stock YE 213 Total Stock YE 216* Vacancy Rate YE 213 Vacancy Rate YE 216* Source: JLL *Estimated data

16 16 JLL Hotels & Hospitality Group Business Parks High-quality business parks are home to multinational companies headquarters, R&D (research and development) centres, and backservice offices, covering industries like electronics, technology, communications, etc. Table 8 lists the high-quality business park stock in 13 Chinese cities. The four Tier 1 cities have the largest high-quality business park stocks. Among the balance, eight were Tier 1.5 cities, with Hangzhou ranking the third with a stock of 5. million square metres. Xi an was the only Tier 2 city listed here. Table 8: High-Quality Business Park Stock: Recorded Cities (213) City Supply (mil sqm.) Shanghai 7.3 Shenzhen 5. Hangzhou 5. Beijing 3.9 Guangzhou 3.4 Suzhou 3.1 Nanjing 2.8 Tianjin 2.5 Dalian 2.5 Chengdu 2.5 Wuhan 1.1 Xi'an.7 Chongqing MICE Demand Drivers MICE demand is another major driver of hotel occupancy. MICE events are supposed to fill a rather large number of room nights in any dedicated time period. The latest data released by International Congress and Convention Association (ICCA) indicates that Mainland China hosted 311 international conferences in 212, compared to 32 in 211. Figure 18 illustrates the cities that hosted five or more international conferences in 212 and 211. Beijing and Shanghai remained the top two destinations for international conferences in 212; however, a dilution of the conference volume amongst more cities could be seen. The number of cities that hosted five or more international conferences was 13 in 212, increasing from 11 in 211. While the conference volumes of Beijing and Shanghai decreased from 211 to 212, cities like Tianjin, Nanjing, Wuhan, Xiamen, Guangzhou, and Suzhou witnessed increase in conference volume. Source: JLL Figure 18: International Conference Volume: 212 vs. 211 Number of International Conferences Beijing Shanghai Xi'an Hangzhou Tianjin Chengdu Nanjing Wuhan Xiamen Guangzhou Shenzhen Suzhou Dalian Chongqing Changsha 212 International Conference Volume 211 International Conference Volume Source: International Congress & Conference Association Note: International conferences above are those held in more than three countries alternately.

17 China Hotel Market Overview Figure 19 extends to international MICE demand. Worldwide international conference volume endured a fast recovery in 24 after the outbreak of Severe Acute Respiratory Syndrome (SARS) in 23 and yet another significant slowdown in the growth rate in 28 when the global economic crisis happened. This slowdown in the MICE market continued until 212, when the Y-o-Y growth of the worldwide international conference volume picked up to 1.8%, an indication that the global economy is showing signs of recovery Leisure Demand Drivers The leisure demand driver is hard to be captured with one comprehensive measurement, but a city s inbound visitor arrivals and tourism receipts can reflect the city s lodging demand as a tourism destination from a broad perspective. As shown in Figure 2, the top five cities that received the most visitor arrivals in 213 were Shanghai, Beijing, Wuhan, Chengdu, and Tianjin, all major gateway cities (Tier 1 and Tier 1.5) in West, East, and Central China. The five cities that experienced the most rapid Y-o-Y growth from 212 to 213 were Yinchuan (5.4%), Nanchang (3.2%), Lanzhou (28.), Xi an (27.), and Chengdu (26.), with more cities in the lower Tiers 2 to 3.5. Figure 19: International Conference Volume: Global (23-212) Number of International Conferences Y-o-Y Change (%) 12, 3 1, 8, 1 6, 4, -1 2, Worldwide International Conference Volume Y-o-Y Change (%) Source: International Congress and Conference Association Figure 2: Total Visitor Arrivals: 41 Cities (213) Total Visitor Arrivals (mil) Y-o-Y Change (%) Shanghai Beijing Wuhan Chengdu Tianjin Xi'an Hangzhou Suzhou Changsha Nanjing Shenyang Wuxi Zhengzhou Chongqing Ningbo Qingdao Guiyang Hefei Wenzhou Kunming Harbin Dalian Guangzhou Shijiazhuang Xiamen Shenzhen Foshan Taiyuan Fuzhou Nanchang Dongguan Lanzhou Urumqi Jinan Xining Haikou Yinchuan Lhasa - Total Visitor Arrivals (mil) Y-o-Y Change (%) Source: Various Statistics Bureaus Note: Data of Nanning and Changchun are not listed due to the lack of published results.

18 18 JLL Hotels & Hospitality Group The top five cities with the highest tourism income in 213 were Beijing, Shanghai, Guangzhou, Chongqing, and Wuhan, all from Tier 1 or Tier 1.5. The five cities that saw the highest growth rates from 213 were Lanzhou (35.), Nanchang (34.2%), Xining (33.9%), Changsha (28.5%), and Chengdu (26.). Lanzhou, Nanchang, and Chengdu are the three cities that endured the most growths in terms of both visitor arrivals and tourism receipts. Figure 21: Total Tourism Receipt: 41 Cities (213) Total Tourism Receipt (RMB bn) 4 Y-o-Y Change (%) Beijing Shanghai Guangzhou Chongqing Wuhan Hangzhou Suzhou Nanjing Chengdu Wuxi Tianjin Changsha Ningbo Qingdao Shenyang Dalian Xi'an Zhengzhou Guiyang Harbin Xiamen Wenzhou Jinan Hefei Kunming Dongguan Foshan Taiyuan Fuzhou Total Tourism Receipt (RMB bn) Y-o-Y Change (%) Shijiazhuang Nanchang Shenzhen Urumqi Lanzhou Haikou Lhasa Xining Yinchuan - Source: Various Statistics Bureaus Note: Data of Nanning, Hohhot, and Changchun are not listed due to the lack of published results.

19 China Hotel Market Overview Hotel Supply & Development As Mainland China's real estate development and urbanization progresses, the number of new hotels will continue to grow. By the end of 213, the four Tier 1 cities comprised more than 4 of the total hotel room stock in the total sample. However, lower tier cities have seen and will witness stronger growth in their hotel markets Existing Supply The total hotel room stock in the 41 cities rose from 22,57 rooms in 21 to 292,215 rooms in 213, recording a CAAG of 13. since 21. Shanghai (51,144 rooms) and Beijing (34,554 rooms) are far leading the existing stock, followed by Guangzhou (19,54 rooms), Shenzhen (13,141 rooms), and Chongqing (12,152 rooms). While the existing hotel room stock is concentrated in the Tier 1 cities, greater growths have been seen in the lower tier cities. The top five cities with the highest CAAG from 21 to 213 were Shijiazhuang (55.8%), Hefei (53.), Changchun (43.7%), Guangzhou (42.), and Guiyang (36.7%). Figure 22: Hotel Room Stock: 41 Cities (213) Shanghai Beijing Guangzhou Shenzhen Chongqing Tianjin Hangzhou Xi'an Chengdu Shenyang Qingdao Wuhan Suzhou Xiamen Dalian Ningbo Wuxi Nanjing Dongguan Zhengzhou Hefei Changsha Foshan Taiyuan Kunming Guiyang Jinan Hohhot Haikou Nanning Harbin Yinchuan Nanchang Fuzhou Urumqi Shijiazhuang Wenzhou Changchun Lanzhou Lhasa Xining 5, 1, 15, 2, 25, 3, 35, 4, 45, 5, Number of Hotel Rooms 21 Existing Stock New Supply 55, Source: JLL Hotels & Hospitality Group, Industry Information Note: Above data includes international-branded hotels only.

20 2 JLL Hotels & Hospitality Group Future Supply Table 9 lists the cities by estimated future hotel room stock by the end of 216, if all projects materialised. The five cities that are expected to endure the largest CAAG in future stock from 213 to 216 are Lhasa (41.3%), Kunming (4.7%), Xining (39.7%), Haikou (38.5%), and Chengdu (37.6%). Chengdu s hotel room stock is expected to increase from over 1, rooms by YE 213 to more than 24, rooms by YE 216 and 26, rooms by YE 217, while the other four fast growing cities have relatively low existing stock of hotel rooms. Real estate investment volume in year now means new projects that can be expected to materialize in the future three to five years. As mentioned in section 2.1.2, real estate investment can provide a rough estimate of the future hotel supply. Figure 23 shows that the top 1 cities by real estate investment in 213 were Beijing, Chongqing, Shanghai, Shenyang, Chengdu, Wuhan, Hangzhou, Dalian, Xi an, and Guangzhou. Table 9: Future Hotel Room Stock: 41 Cities (YE 216) Cities > 2, Shanghai, Beijing, Chengdu, Guangzhou 1,1 2, Tianjin, Chongqing, Hangzhou, Shenzhen, Wuhan, Xi an, Suzhou, Qingdao, Shenyang, Xiamen 7,1 1, Changsha, Wuxi, Dalian, Nanjing, Ningbo, Zhengzhou, Kunming, Foshan 4,1 7, Haikou, Hefei, Dongguan, Taiyuan, Guiyang, Jinan Source: JLL Hotels & Hospitality Group, Industry Information Note: Cities in red are newly included in the respective category this year. While these cities were mostly in Tier1 and Tier1.5, cities with the most increase in real estate investment from 212 to 213 were in the lower tiers. The top 1 cities with the highest Y-o-Y growth were Haikou, Kunming, Xining, Zhengzhou, Dongguan, Fuzhou, Hohhot, Lanzhou, Ningbo, and Urumqi. Figure 23: Real Estate Investment: 41 Cities (213) Real Estate Investment (RMB bn) Y-o-Y Change (%) Beijing Chongqing Shanghai Shenyang Chengdu Wuhan Hangzhou Dalian Xi'an Guangzhou Tianjin Suzhou Changsha Kunming Fuzhou Chashang Wuxi Ningbo Nanjing Hefei Qingdao Shijiazhuang Shenzhen Harbin Foshan Wenzhou Jinan Changchun Hohhot Xiamen Dongguan Taiyuan Nanning Nanchang Yinchuan Haikou Lanzhou Urumqi Real Estate Investment (RMB bn) Y-o-Y Change (%) Xining Source: Various Statistics Bureaus Note: Data of Guiyang and Lhasa are not listed due to the lack of published results.

21 China Hotel Market Overview The Future of Hotels in Mainland China Mainland China s hotel transformation occurred during the 198s, probably best demonstrated by the well-known Jianguo Hotel. Located in Beijing s diplomatic quarter, the hotel is synonymous with the hospitality transformation in the Mainland. Fast forward to 28, the Aman at the Summer Palace, developed and built by the Beijing Tourism Group in collaboration with Aman Resorts, also made a major impact. At the time, the hotel raised industry standards for luxury and innovation. This was obviously a taste of things to come. Hotel developers in the Mainland continue to outdo each other with the most ambitious, luxurious and aesthetically pleasing projects imaginable. Capturing the world s attention most recently is the Sheraton Huzhou Hot Spring Resort. The 27-storey hotel looms over the skyline of Huzhou, near Shanghai. Set on the shores of Lake Taihu and offering 321 spacious guest rooms, including 44 suites and 39 villas, it's an ideal destination for the Mainland newly affluent business class. Coming in 215 will be the Intercontinental Shimao Shanghai Wonderland, a 19-story, 38-room luxury hotel and theme park, developed by Shanghai Shimao Property Group. Constructed only three stories above ground, the hotel has been built into an abandoned quarry in Songjiang. Whilst the hotel will include several F&B options including an underwater restaurant, spa and an athletic complex for water sports with a 32-feet deep aquarium below ground, above ground guests will be able to use the quarry s cliffs for extreme sports like bungee jumping and rock climbing. The highlight of this hotel will be a 6-meter tall glass curtain wall that is intended to mimic a waterfall next to the resort s main structure. Overall, Mainland China is a key expansion proposition in Asia Pacific for many international hotel chains who are vying to establish a foothold in what is the region s single largest market. JLL estimates that over 4, rooms across 1,5 projects 75% of total Asia Pacific supply is under construction or proposed. But development

22 22 JLL Hotels & Hospitality Group aside, these new international brands must also localise for the highly competitive Chinese market. International hotel chains are adapting their services to suit unique Chinese preferences. Hotel operator Accor has focused on Mainland China as it re-engineered its Grand Mercure brand to tailor to the needs of the wealthy Chinese traveller. Known in Chinese as Mei Jue, the upscale hotels are highly influenced by Chinese design and each property is tailored to the characteristics of the Chinese city in which it operates. It s not just the grand designs that make a brand distinctly Chinese. Grand Mercure, for example, caters to Chinese palates by offering a 24-hour congee menu. Besides localising its existing brands, InterContinental Hotels Group (IHG), one of the largest international hotel operators in the country, has develop a new luxury hotel concept designed specifically for Chinese guests. Hualuxe which uses the Chinese word Hua for majestic and in English luxe for luxury will debut this year. Hualuxe will offer guests a more traditional experience based on four priorities that Chinese travellers are said to require: Chinese etiquette, rejuvenation, status recognition, and space for social interaction. In the competitive international hotel market a one size fits all approach doesn t work. In a world where cross-cultural influences affect even the biggest brands, being responsive to changes in consumer preferences could prove to be the difference between success and failure. As hotel operators continue to seek opportunities throughout Mainland China, we can expect global brands entering the market with innovative ways to identify with the local culture. And we can also be sure to bid farewell to the few who fail to localise. Attachment: List of Provinces in each region North China: Heilongjiang, Jilin, Liaoning, Tianjin, Hebei East China: Shanghai, Jiangsu, Zhejiang, Shandong Central China: Shanxi, Anhui, Jiangxi, Henan, Hubei, Hunan, Fujian South China: Guangdong, Hainan, Guangxi West China: Inner Mongolia, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang

23 China Hotel Market Overview JLL Hotels & Hospitality Group JLL Hotels & Hospitality Group serves as the hospitality industry s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totalling nearly US$3 billion, while also completing approximately 4, advisory, valuation and asset management assignments. The group s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from JLL s Hotels & Hospitality Group, please visit: or download the Hotels & Hospitality Group s app from the App Store. About CTHA Established in February 1982, the CTHA is a national non-profit industry organization formed, in a voluntary manner, by the association of tourist hotels, local hotels, hotel management companies, hotel equipment & supplies providers and other relevant organizations in China as well as the hotel experts and senior scholars, under the operational guidance, supervision and management of the China National Tourism Administration. The CTHA s mission is to act in compliance with local law, protect its members legal rights and interests and serve as a bridge between its members and the Government. Today, the CTHA counts 2,7 members, 333 directors, 115 standing directors and 25 vice presidents. Mr. Zhang Run Gang is the president of the Association. The CTHA serves its members by strengthening communication amongst its members, collecting information on the domestic and international hotel market, providing hotel training programs and forums and by liaising with overseas hotel & tourism organizations. In 1994, the CTHA joined the International Hotel & Restaurant Association as one of its directors. Disclaimer This report is confidential to the recipient of the report. No reference to the report or any part of it may be published in any document, statement or circular or in any communication with third parties without the prior written consent of Jones Lang LaSalle Hotels & Hospitality Group, including specifically in relation to the form and context in which it will appear. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions in respect of a considerable number of variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome and we draw your attention to this factor. Jones Lang LaSalle Hotels & Hospitality Group makes no representation, warranty, assurance or guarantee with respect to any material with which this report may be issued and this report should not be taken as an endorsement of or recommendation on any participation by any intending investor or any other party in any transaction whatsoever. This report has been produced solely as a general guide and does not constitute advice. Users should not rely on this report and must make their own enquiries to verify and satisfy themselves of all aspects of information set out in the report. We have used and relied upon information from sources generally regarded as authoritative and reputable, but the information obtained from these sources may not have been independently verified by Jones Lang LaSalle Hotels & Hospitality Group. Whilst the material contained in the report has been prepared in good faith and with due care, no representation or warranty is made in relation to the accuracy, currency, completeness, suitability or otherwise of the whole or any part of the report. Jones Lang LaSalle Hotels & Hospitality Group, its officers, employees, subcontractors and agents shall not be liable (to the extent permitted by law) to any person for any loss, liability, damage or expense ( liability ) arising directly or indirectly from or connected in any way with any use of or reliance on this report. If any liability is established, notwithstanding this exclusion, it shall not exceed $1,.

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