Brands see opportunity in China amid real estate crisis

Major hotel groups that partner with China’s embattled real estate developers say they are still on track with their envisioned growth targets – even as the makeup of those developers evolve.

China has a debt overhang of $300 billion in its real estate sector with big developers such as Country Garden and China Evergrande Group being at the center of the storm. Although it’s mostly residential-related, global hotel chains can’t afford to turn a blind eye. Accor, Hilton and Minor Hotels are among those that have agreements with Country Garden subsidiary, Funyard Hotels & Resorts, which has pledged to build thousands of rooms in the mainland carrying their flags.

Yet despite a hanging-by-the-thread Country Garden, which is facing pressure to show progress on a debt restructuring plan, the big brands are optimistic.

One reason, said Accor CEO for Greater China Gary Rosen is that Country Garden is “quite disciplined about the segmentation between their residential and other businesses, with hotels being part of [the latter].”

Rendering of a Jo&Joe hotel for China

Rosen also pointed out that while some development companies, in general, face challenges, the healthier others gain opportunities to acquire their assets. “We have seen private developers and state-owned companies [SOEs] across China picking up the assets that some of the [struggling] development companies are selling off. These assets include residential or office buildings, which they are turning into hotels because hotels obviously are a strong and reliable bet when you're thinking about investment and getting a return.”

Rosen said funding is still available for the right projects with the right returns. “In fact, people have become far more savvy about looking at the numbers and returns,” Rosen added. “We’re seeing [the trend] consistently across China, and not just in major cities but tertiary cities. So, for us, it’s been an opportunity that accelerates our development overall.”

Ho Kwon Ping, executive chairman of Banyan Group, foresees that the owners of new hotels in China will no longer be property companies, or even local governments whose cash reserves are strapped. They will be the financially solid SOEs, instructed to take over unfinished hotels, he said.

“We also see huge demand for locally owned and managed hotels to get foreign branding and marketing,” Ho said.

Last December, Banyan Group agreed to buy China Vanke’s equity in two joint ventures – Banyan Tree Services (China) and Banyan Tree Hotel Management (China) – for 480 million yuan as the Chinese developer, said to be the second largest developer in China by sales, sweats to stave off sluggish sales. 

Added Ho, “Our 10-year strategy for China remains valid – that China has a long way to go before reaching per capita hotel keys ratios of developed countries, and that our midscale and upscale brands should benefit from the growth of the middle class… No one is putting China on hold; they are all going to be more cautious though.”

Still bullish

Accor, which has worked with Country Garden on premium hospitality projects for many years, extended the partnership in 2022 with a master franchise agreement with Funyard to introduce Jo&Joe to China and grow the lifestyle brand there to at least 1,300 hotels with 100,000 rooms over the next 30 years.

Our 10-year strategy for China remains valid – that China has a long way to go before reaching per capita hotel keys ratios of developed countries, and that our midscale and upscale brands, should benefit from the growth of the middle class… No one is putting China on hold; they are all going to be more cautious though.

KP Ho

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Rosen said several Jo&Joe hotels will open this year, and that he is more focused on “getting people into training as Jo&Joe is a very specific lifestyle product,” than worrying about the impact of the real estate crisis on the business.

Hilton’s partnership with Country Garden goes back to 2018 with a joint vision to see numerous hotels owned by the developer, starting with six properties, primarily branded DoubleTree by Hilton and Hilton Garden Inn. Two years later, Hilton signed an exclusive management license with Funyard to introduce and develop more than 1,000 Home2 Suites by Hilton in China.

Qian Jin, Hilton’s president for Greater China & Mongolia, told Hotel Investment Today, “Our agreement with Funyard is currently ahead of target with more than 50 hotels already trading.”

He added, “We remain bullish on the China market and are seeing domestic demand rise above pre-pandemic levels, with 474 million domestic trips taken during this year’s Lunar New Year holidays – 19% increase from 2019 levels. Spending per domestic tourist in 2023 has already surpassed its pre‑pandemic levels, reaching a five‑year high, according to the National Bureau of Statistics.

“We are also seeing a strong recovery in China outbound, with our hotels in the broader Asia Pacific region benefiting from these inflows. Our own trends report shows that 85% of Chinese respondents intend to spend more on travel this year than they did last year.”

Minor Hotels’ pact with Funyard, signed in June 2021, aims to bring Anantara, Avani, Oaks, Elewana, Tivoli and NH brands to mainland China, many of them for the first time. Dillip Rajakarier, CEO of Minor Hotels, said he’s pleased with the progress, which includes the opening of NH Zhengzhou Jinshui in late 2023. Two other NH hotels, in Zhangjiajie and Shenyang, are undergoing pre-opening or renovations. Eight additional projects are under construction and progressing towards completion.

Rajakarier said to date, the joint venture with Funyard “has not experienced any negative impact.”

He added that Minor Hotels remains firmly committed to developing its brands in China. “Our established partnership with Funyard Hotels & Resorts remains key to this strategy.”

Rajakarier added that China remained the leader in hotel construction activity within the Asia Pacific region in 2023 and ranked second globally. “This indicates a continued focus on the Chinese market by hotel chains, including us,” he said. “We believe China presents significant growth opportunities, and we remain dedicated to capitalizing on its potential.”

Minor is a relative newcomer with seven operating hotels in China and aims to add 100 hotels to the Chinese portfolio within the next five years. IHG is crossing 700 operating hotels, while Hilton surpassed 650 trading hotels in the last quarter and expects to open a new hotel every three days in China.