A less unsung story than China's growth is how the pandemic has made the rest of Asia-Pacific a gold mine for chains. Opportunities for conversions and franchising appear at their strongest ever. But the best thing? Owners with a new mindset.
The four biggest international hotel chains in Asia-Pacific in 2019 opened a combined total of more than 300 hotels and signed more than 500 hotels in the region in the pandemic-hit year 2020.
The number for the chains, which had been enjoying three years of a great development pace in Asia-Pacific, were expected to be higher, of course. But the gains in 2020 were nothing less than impressive given the historic challenges (see chart).
A horrifying year had turned out to be more resilient than expected, a validation that Asia-Pacific will remain the fastest-growing hotel region of the world by any measure.
And 2021 is already looking good. Hilton, which had record openings of 79 hotels last year, opened 15 hotels in Asia-Pacific in January 2021 alone.
“It’s almost a dichotomy,” said Alan Watts, Hilton’s president for Asia-Pacific. “While trading returns have been depressed over the Covid period, openings and signings have kept the pace. What it means is investors in general see it as a ‘pause’ in trading returns rather than a disruption.”
The top four chains are confident of opening more than 100 hotels each this year as projects that were delayed or postponed in 2020 are carried forward, and vaccine roll-out is a real shot in the arm for owners.
Last year’s openings were driven by investors noting the strong rise of domestic travel in Asia-Pacific and having a longer-term faith in recovery due to infallible evidence of pent-up travel demand. Openings were largely in countries where local demand had returned such as China, Japan, Australia, Indonesia, Thailand, and Vietnam, even if there were virus flare-ups.
Contrary to the sense that it’s all mostly driven by China, openings were across the region. Of 75 hotels that Marriott opened last year, more than half (39 hotels) were outside China, in particular Japan where it added 20 hotels. “In the next couple of months we’ll end up as the largest international hotel operator in Japan. We’re going to open 11 more hotels this year in Japan,” said Rajeev Menon, Marriott’s president for Asia-Pacific.
Admittedly, much of that development was planned way out in anticipation of the ill-fated Tokyo Olympics. “But it’s not as if the development process has slowed down. The fundamentals are right. The Japanese government, as we know, is aggressively pushing inbound tourism which already reached 32 million foreign visitors in 2019. It is also very supportive of domestic tourism. Last year, we were seeing occupancy getting to 50 percent with the Go To Travel campaign,” said Menon.
Australia is another phenomenal growth story, he said. “There hasn’t been much development for 20 years after the Sydney Olympics but look at where Australia is now. We just opened W in Melbourne, a Luxury Collection in Hobart and is opening a Ritz-Carlton in Melbourne later this year.”
In Indonesia, Marriott added another six hotels last year to the existing 60. “Again, that’s a market with a 270 odd million population base,” said Menon. “The biggest learning for the industry at large is to pivot swiftly to domestic business. And while China is a big play, development is spread across Asia-Pacific.”
Last year also saw robust signings in Asia-Pacific, which Hilton’s Watts said was in part due to developers taking advantage of low interest rates, and land owners or leasehold owners wanting to do deals in time of uncertainty.
“There is a lot of capital in the market looking to deploy. The APAC story as having half the world’s population and rising domestic market fueling growth – that story remains unchanged.
“There is also appetite for new brands,” said Watts.
An example is the Hilton Garden Inn brand which the chain is introducing in Japan, Australia and Southeast Asia, where it is already in Singapore.
“There is demand for focused service brands, so Hilton Garden Inn is relevant. Its growth is primary new-build hotels, not conversions, from new investors looking for a return. If you think of your ability on a relatively small piece of land to field 150 to 200 rooms, simplified F&B, central services that can run outside the property, and how focused service has delivered owner returns for all of the major companies, its day has come in Asia-Pacific, as it had in the US and Europe,” said Watts.
At the other end of the spectrum, there is also demand for new luxury brands in Asia-Pacific such as Waldorf Astoria, he said. Hilton signed its first Waldorf Astoria in Japan last year, a property to be developed by giant real estate developer Mitsui Fudosan and which is expected to open in 2026. “There are more works within luxury in that market that I can’t talk about,” Watts said.
Hilton is the smallest of the four chains in Asia-Pacific, with 352 hotels/94,103 rooms in operation in 2019.
But the company is making headway and appears to be the fastest-growing last year in signings (169 hotels/30,454 rooms). Watts expects the momentum to continue, even increase, given its master agreement with Funyard Hotels & Resorts to introduce 1,000 Home2Suites by Hilton in China over a timeline of 30 years. To-date, 30 Home2Suites hotels have been signed, said Watts.
For Accor, by far the largest international chain in Asia-Pacific with 1,200 hotels/232,458 rooms in operation in 2019, the big story is Southeast Asia’s pace. (Note: This Asian sub-region for Accor includes Japan, Korea and the Maldives.)
Globally, Accor signed 50,000 keys last year. Nearly half (47 percent) were in Asia-Pacific. Of that, 11,000 keys were in Southeast Asia or 22 percent of keys signed globally.
“Surprisingly, 2020 was a very good year considering the challenge of Covid. We signed as many keys in Southeast Asia, 11,000 keys, as we signed in Europe [Accor’s biggest market],” said Andrew Langdon, Accor’s senior vice president development Asia. “2020 was our second best year of signings in Southeast Asia. The best year was in 2019, with 17,000 keys.”
There were other bests. Last year was also the best year for Accor in Southeast Asia in the number of luxury keys signed (1,000), midscale keys (5,000) and branded residences (3,500), the latter representing two-thirds of residential keys signed globally.
Langdon is targeting a 15 to 20 percent growth in signings this year, over the 101 hotels/23,612 rooms signed in Asia-Pacific in 2020. He said the development team is “snowed under” and would probably sign more conversion deals this year than in any other year, mostly in Southeast Asian countries such as Thailand, Indonesia and Malaysia where there are large pools of unbranded hotels.
For chains, a downturn usually means an upswing in conversion opportunities. The deeper the crisis, the faster the flight of owners of unbranded hotels to migrate to a brand that comes with all the marketing, distribution and loyalty program wherewithals. And nothing beats the worst crisis than Covid-19.
Accor sees more enquiries for conversions in Southeast Asia in the first four weeks of 2021 than in the past three years combined, said Langdon.
Rise of Franchising
Franchising, whose evolution in Asia-Pacific has been tortoise-like, is finally set to soar like eagle. Third-party or “white label” hotel operators, a model well-established in the US and Europe, are appearing in the region, providing a solution to investors to manage their franchised properties. Or, the arrival of younger owners who are more willing to take risks and want to put their hands in the business.
Whereas in the past chains were reluctant to franchise in a developing hotel market, Asia-Pacific is now more mature. After two decades of hotel growth, talent has built up and transfer of knowledge in hotel operations is done.
Enquiries from owners for franchises have rocketed, said Langdon. As a result, Accor is rolling out “a franchise strategy” for Southeast Asia, building on its franchise success in Australia that is focused on the midscale segment.
Accor is bringing its Australian brand Mantra into Southeast Asia and offering it as a franchise option, along with its other midscale brands Ibis Budget, Ibis Styles, Mercure and Novotel. This, coupled with a new quick conversion platform for brand standards, should accelerate conversions.
“What’s crucial now is, given the challenges in the market, owners do not have the financial power to invest in PIPs [property improvement plans] in their hotels to bring them up to brand standards. We address that with franchising and a quick conversion platform,” said Langdon.
He expects that a third of all signings this year and going forward will be under a franchise basis. Last year, excluding China and the Pacific, franchise signings were not even 10 percent, more on an ad hoc strategic basis, he said.
IHG Hotels & Resorts, which already has a large franchise estate in in China and Korea, also sees “a keenness for franchising” in Southeast Asia in markets such as Thailand and Vietnam.
“We have always talked about the need to do more [franchising] and last year was the year we started seizing the opportunity,” said Serena Lim, IHG’s vice president development, South, East Asia & Korea.
“Development thrives on unpredictability and last year presented different opportunities. There were clear, strong trends towards conversions and franchising and, for us, it’s really about diving into those opportunities,” she said.
IHG signed its first franchise agreement in Thailand in October last year, the Crowne Plaza Bangkok Rama 9, scheduled to open in 2025. Eyes did not roll that it franchised an upscale brand, because the partners in the project, real estate player Siamese Asset and third-party operator Kew Green Hotels UK, are longtime partners of IHG.
Siamese Asset and Kew Green Hotels UK inked a joint venture last year, Siamese and Kew Green Management Company, to develop hotel/branded residences in Southeast Asia. That’s a good example of how third-party hotel operators are mushrooming in the region.
Isn’t it Lovely
In the hard hat world of development, few things if any can be described as lovely. But pandemic has brought a beauty; it has opened owners’ eyes and hearts to explore development in new drive-to destinations, said IHG’s Lim. Most hearteningly, having been dealt a rude blow by the pandemic, owners are jolted into a sense of commitment and obligation to drive tourism back.
“The beauty of Covid is that owners now are willing to have more meaningful conversations. In the past, everybody was running to get their hotels sign up, running to get their hotels built, and not really not understanding, why am I doing this, what’s important to me? Now they are thinking, how can I bring new ideas to the destination?
“I’ve had lovely, lovely conversations with owners who are exploring their own countries and gushing, oh it’s a beautiful, and thinking about how they can create new enclaves. In Vietnam, for example, I know owners who have gone to provincial governments and say let’s do something about this and that. These are areas whose names we can’t even pronounce. So we will see new destinations opening hopefully,” said Lim.
Therein lies the biggest opportunity for hotel development. Not just to build and convert, but to bring back the excitement of travel by widening the tourism product and, perhaps for some, narrowing the relentless drive for revenues.
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Photo credit: Hotel Perle d’Orient MGallery Cat Ba, Vietnam: One of the many hotel openings in 2020. Photo credit: Accor