Growing middle class population driving demand for hospitality

Buoyed by the rapidly expanding middle class and their growing tastes, international luxury hotel chains are now eyeing growth through expansion in the second- and third-tier cities of China.

Several leading hotel chains such as JW Marriott and Sofitel have already charted plans for new hotels in the country's second- and third-tier cities, said experts. The tiers refer to the characteristics of a city or region, generally cities with population and economic development below leading cities such as Beijing and Shanghai.

Most of these cities boast populations of several millions, though with less advanced infrastructure and transportation systems.

The Marriott recently completed the renovation of a 454-room hotel in downtown Chongqing, and is getting ready to open its doors in December. The work was undertaken to address the needs of the growing well-healed population in the southwestern municipality, the company said.

The luxury chain plans to expand from 16 cities in 13 provinces, municipalities and special administrative regions, to more than 59 cities in 27 provinces, municipalities, autonomous regions and special administrative regions across China by 2017.

Marriott International, which has plans to open a new hotel in Asia every week, expects to more than double in size in Asia through 2016, from the more than 150 hotels currently, to more than 350 in 19 countries.

According to Simon Cooper, president and managing director of Marriott International Asia, most of the planned hotels in China will be in second- and third-tier cities, including Tianjin, Yiwu, Chengdu, Chongqing, Changzhou, Ningbo and Zhuzhou.

Sofitel plans to build eight more hotels in the Chinese mainland by 2017, with four more in the blueprint stage, while Banyan Tree Hotels and Resorts, an international luxury group, has charted plans to open hotels and resorts in Yangshuo and Huangshan this year.

Marco Polo Hotels, the Hong Kong-based hotel management company of The Wharf (Holdings) Ltd, plans to launch its first new brand, Niccolo by Marco Polo, since the hotel group's inception in 1986.

The first Niccolo hotel will open in the first quarter of next year within the group's newly opened International Finance Square in Chengdu in Sichuan province, another second-tier city in China.

"As the country's middle class keeps growing, the purchasing capacity of the second- and third-tier cities keeps surging," said Miao Jianwei, general manager of JW Marriott Hotel Chongqing. "The market in these lower-tier cities is booming."

According to a report by IBIS World, a market researcher, hotel revenues in China will soar to $56.2 billion by 2017.

A recent report from global consultancy firm McKinsey and Company also states that by 2020, half of the urban Chinese households will have disposable income between $16,000 and $34,000, which illustrates that more households will be able to afford travel.

The increasing disposable income has also directly influenced the spending habits of the Chinese.

According to a report released by the tourism shopping company Global Blue, Chinese tourists remain the biggest spenders on travel overseas, with their average spend in the first quarter growing 25 percent year-on-year to 846 euros ($1,150) per person, compared with the global average of 502 euros.

"The luxury chain hotels are here, with their first class service and facilities, to meet the growing middle class and their growing demand," Miao said.

The international property consultant Knight Frank also echoed that sentiment.

International hotel brands are expected to increasingly target lower-tier Chinese cities despite increasing challenges in the sector, Knight Frank said in its recent report in September.

The mainland's hotel market is facing fierce competition among local and international hotel brands, slower local economic growth, increasing operating costs and the government's policies to curb consumption of luxury goods and services, it said.