A recent report by the World Travel & Tourism Council and the International Monetary Fund said China's travel and tourism industry is poised to become the world's second-largest by contribution to GDP after the US by 2015, with a projected annual growth rate of 8.7 percent between 2007 and 2016.

Beijing and Shanghai, the two major tourist destinations, will see an increase in RevPAR (revenues per available room) at more than 10 percent in the upper-tier hotel market, says Jones Lang.

The key gateway cities will see demand growth beyond the 2008 Olympics also, underpinned by the growing MICE (meeting, incentives, conventions and exhibitions) sector and acceleration of infrastructure enhancement in the long term.

The more prominent secondary cities will be highly sought after although Beijing and Shanghai remain the preferred investment locations.

Related readings:  Retail sales of hotel, catering sectors up 18%  Budget hotels eye expansion  China to become 3rd biggest travel destination  Travel market set to fully open

"The hotel stock (in Beijing and Shanghai) is tightly held and owners appear hesitant to trade unless there is a perceived premium on offer. But opportunities (in secondary cities) are more available and potential gains are considered attractive," said Flaig.

The trend was already evident in 2006. Among the 16 transactions last year, nine were in Beijing and Shanghai, the rest being in Tianjin, Guangzhou, Kunming and Wuxi.

"There'll be more foreign investors outside Asia joining in the China market," said Flaig.