Why China is the right growth market for Ascott-Jin Jiang JV

SINGAPORE — Last week, Singapore-based The Ascott Ltd. announced it was entering into a 50-50 joint venture with Shanghai-based Jin Jiang Hotels for asset-light expansion in China for two of their apartment hotel brands: Ascott’s Quest and Jin Jiang’s Tulip Lodj.

Hotel Investment Today interviewed via email Joseph Wong, managing director of China for Ascott, to talk about the JV and future development. He said the deal will help both companies explore the vast growth potential in China.

“Ascott China’s 50-50 joint venture with Jin Jiang Hotels (China Region) will enable both parties to tap into the vast potential of China’s hotel franchise industry and advance the asset-light expansion of Quest and Tulip Lodj in the market,” he said.

The JV will use the franchise model to meet what the company said is an underserved demand for apartment hotels in the country’s upscale and upper midscale segments. The JV also announced last week that it would immediately manage two properties in Wuhan and one pipeline property in Shenzhen under the Tulip Lodj brand.

Wong said that the companies believe that the franchise model is the right tool for growth in China. “As a proven business model with a strong framework for success, the franchise model will provide flexibility for owners who increasingly prefer greater autonomy in the management of their operations, while still seeking the established standards and backing of a brand,” he said.

With this model, owners are also able to adopt plug-and-play strategies while quickly entering a market.

Joseph Wong

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The model will also allow owners to use methods that have been successful elsewhere, which should also increase their speed entering into each market, Wong said.

“With this model, owners are also able to adopt plug-and-play strategies while quickly entering a market,” he said. “In addition, we are also witnessing the growing importance of localization in operations as well as the demand for consumer experiences across various markets. A franchise model caters to this demand, allowing owners to swiftly adapt and localize to local markets.”

Wong said this is particularly important in China, where markets are diverse and have various consumer segments.

Quest is Australasia’s leading apartment hotel brand, and Ascott said it sees tremendous growth potential in China. Last week, the company said 68% of new hotel signings in China in the first half of 2024 are franchise contracts, up from 61% a year ago and above the 62% average of regions outside the Americas. Wong said that all of that should lead to the joint venture rapidly expanding.

What analysts are saying

Robert Hecker, managing director for Pacific Asia at Horwath HTL, said the JV demonstrates that Ascott is continuing to pursue expansion aggressively. “The JV should definitely accomplish a major acceleration of growth in China for Ascott,” he said.

With China’s current economic downturn, consumers are shifting towards more cost-effective options, which makes the serviced apartment segment increasingly appealing, according to Jingjing Zheng, project director for Horwath HTL China.

Jingjing Zheng

“Serviced apartments not only offer larger room sizes but also more comprehensive kitchen facilities than hotels of similar standards,” she said. “They cater well to both short-term and long-term stays, adding flexibility and value for various types of guests.”

Zheng said there is an oversupply of properties in certain regions of China, where the residential market continues to decline.

“For investors, serviced apartments present a viable option to repurpose surplus properties. Unlike hotels in China, apartments also have more mature exit channels, including the ability to issue REITs, which has drawn significant interest from investors and management groups,” she said.

Zheng also said as China’s largest hotel company, Jin Jiang is a dominant force in the economy and midscale hotel market, and it brings extensive distribution networks and loyalty programs that make the company an ideal partner.

“For Jin Jiang, Ascott’s expertise and established reputation in the serviced apartment sector make it an ideal strategic partner for advancing into this growing field,” she said.