CHINA daily - Sporting growth

The 2008 Beijing Olympics is coming, the Chinese economy is booming and hotel investment is humming in the capital city.

In April, Fu Wah International (Fu Wah), held the grand opening of its new hotel, The Regent Beijing, which stands along Jinbao Street, part of Beijing s bustling Wangfujing commercial area.

The 500-room, five-star hotel, designed by Hirsch/Bedner Associates, features a style that blends contemporary luxury and classic Chinese, and has quite a number of rooms enjoying panoramic views of the Forbidden City.

But the hotel does not stand alone. Neighboring The Regent is office building Jinbao Plaza and four-star hotel Park Plaza Beijing that opened a year ago. All three were developed and are owned by Fu Wah, which has invested some 1.8 billion yuan in the projects.

Fu Wah is an example of how robustly real estate groups, both from home and abroad, have been cashing in on the thriving Chinese economy and the lead-up to the 2008 Beijing Olympics - and how generous they have been in hotel investment in the capital city.

Financial Street Holding Co Ltd put more than 3 billion yuan into constructing two hotels that became operational this year along Beijing Financial Street, known as the Chinese Wall Street, about a 20-minute taxi ride west of Wangfujing.

Beijing Huamao Surapan Hotel Development Co Ltd, a joint venture between Beijing Guohua Real Estate Co Ltd and Thailand s Surapan Development Co Ltd, will invest around 2 billion yuan to build two luxury hotels in China Central Place, an emerging commercial area in Beijing s eastern sector. The two hotels are now under construction.

The coming 2008 Beijing Olympics is a key stimulus for the hotel development spree.

"The hotel sector is clearly the most affected (in the real estate industry) by the Olympic Games due to the direct impact of Olympics-related arrivals and the resulting demand for short-term accommodation," says a report by Jones Lang LaSalle Hotels, the world s leading hotel investment services firm.

But from the investors perspective, it would be short-sighted to spend huge amounts of money on hotel projects merely because of a two-week long global sports event.

"It is important to point out that the Olympics has put Beijing in the spotlight of attention worldwide, but I don t believe it has caused the growth of hotel investment. It has much more to do with what is happening in China and Beijing, including their rising economies, growing tourist arrivals and a maturing legal system on land purchasing," says Andreas Flaig, executive vice-president of Jones Lang LaSalle Hotels.

Flaig s thoughts help explain why real estate developers and experts have been insisting that Beijing s hotels will experience continuing growth in room demand, which would be different than what happened in other host cities like Atlanta and Barcelona.

"The underlying economies are the true drivers of the (hotel) investment activities," Flaig adds.

"The occupancy rate in 2009 and 2010 will be less than that of 2008, but it is a slight drop without negative impacts and this would come naturally."

In 2006, the revenue per available room (Revpar) in Beijing s five-star hotels stood at 949 yuan, up 4.7 percent compared with 2005, while the occupancy rate was 73.4 percent. For four-star hotels, growth figures were stronger, reaching 515 yuan in Revpar, up 12.9 percent, and an occupancy rate of 76.1 percent.

Chiu Yung, president of Fu Wah International, is exuberant about business figures for the company s two hotels after the Olympics.

"They would go stronger after the event," predicts the executive.

The Park Plaza, has been running for a year, has been enjoying fantastic

occupancy rates - as high as 100 percent, according to Chiu, who adds that The Regent, which has had a soft opening for a few months, enjoys an occupancy rate of 80 percent.

Yet compared to office towers, retail malls and residential buildings, the annual return on investment in hotel properties is usually less attractive.

"It usually takes developers eight to 10 years to begin to gain profit from a hotel investment, slower than any other real estate project," says Ju Jin, vice-chairman of the board of Financial Street Holding Co Ltd.

That is why many investors are attaching hotels to a range of other properties rather than building an isolated hotel.

From the Financial Street to Wangfujing and China Central Place, hotels are going up with shopping malls, office buildings and entertainment halls, which as a whole constitute a property complex.

"To create a more business-friendly environment, we invest not only hotels but also other properties in a specific area, and this gives a boost to each business," says Ju.

Surrounded by finance-related organizations and regulators from home and abroad, the two hotels Financial Street Holding owns are "expected to break-even quicker, like in five years", according to Ju.

Partnering with international hotel management groups is another path investors follow.

Fu Wah joined with Carlson Companies, a leader in the travel and hospitality industries. Huamao Surapan partnered with Marriott International, an international hotel giant. Financial Street Holding combined with Sheraton Hotels & Resorts and Marriott International.

Despite the attractiveness of major cities like Beijing and Shanghai, which have great prospects in the long run, real estate companies are "starting to take a shine to secondary cities, and the trend has begun", says Flaig.

The reason is simple - the inventory of properties for sale in Beijing and Shanghai is rather limited, but the number of investors interested in China is exploding.

More accurate research and studies on secondary cities are also now available, so investors have more understanding about the opportunities rising from those cities - the growth potential and the fundamental growth per capita.

"Sellers (in the secondary cities) have a reasonable expectation on price, so the likelihood of a transaction to take place is bigger," says Flaig.

The executive says that the trend toward secondary cities started in 2006 and shows promise, with 10 to 15 cities on the investment horizon over the last 12 months.

Jones Lang helped six hotel property owners strike deals in 2006. Four are located in secondary cities including Tianjin, Wuxi, Kunshan, and Kunming.

"We provide clients all-around services including advice on when, how and to whom to sell, property assessment, and acquisition due diligence. They are very eager to have such services provided," Flaig says.

Ju from Financial Street Holding says the group is now busily preparing for constructing hotels in Tianjin Municipality and Guangdong Province, which will open within two years.

"We are copying what we have done in Beijing in the other projects," he says.