What’s Behind China’s Luxury Hotel Buying Spree?

February 11, 2015/0/0
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For years, the stereotype of the traveling mainland Chinese consumer has been a group-tour attendee who spends next to nothing on two-to-three-star accommodations, eats at low-end Chinese buffets…and drops thousands at luxury boutiques around the world. Stories abound of frustrated luxury hotels in Manhattan watching as big-spending VIPs clear shelves on Fifth Avenue then promptly board buses back to budget hotels in New Jersey. As the New York Times wrote last fall:

Tour operators who specialize in bookings for Chinese say there are two main areas where Chinese tour operators look for hotel rooms in New Jersey, one around the Newark airport, the other along the New Jersey Turnpike around the exits for North Brunswick and Edison. They appeal to tour wholesalers booking groups that have spent a day in places like Washington or Philadelphia and plan to spend the next day in Manhattan.

This trend of Chinese tourists — whether ultra-rich or solidly lower-middle-class — scrimping on sleep and splurging on luxury has, perhaps rightfully, been bewildering for leading brands, retailers, and hoteliers. Despite large-scale marketing efforts in mainland China and highly publicized Chinese tea, breakfast, and slipper additions, anecdotal evidence among Manhattan luxury hotels suggests that Chinese guests continue to make up a relatively small portion of their business — and those who have been the most loyal customers remain business travelers rather than tourist-shoppers.

However, recent investments by Chinese companies indicate that these frustrations may be premature, and Chinese guests will, in time, see luxury hotel stays as equally important to the travel experience as their Western and Japanese counterparts.

Fueled by the loosening of government restrictions on Chinese companies investing abroad, a simmering trend of luxury hotels acquisitions by Chinese players has grown to a boil over the past year. In October of last year, China’s Anbang Insurance Group Co. announced that it would purchase New York’s iconic Waldorf-Astoria hotel for $1.95 billion, and high-profile real estate and entertainment juggernaut Dalian Wanda Group Co. paid $900 million last year for a skyscraper (which hosts a luxury hotel) in Chicago last year. In the last 12 months alone, other Chinese investors have spent heavily on high-end hotels in far-flung locales such as LA, Washington DC, and Sydney.

Most recently, China’s Sunshine Insurance Group agreed to pay a whopping $230 million for the Baccarat Hotel in New York — more than $2 million per room. This makes the Baccarat the most high-value hotel property ever, just edging out the $2.04 million paid in 2012 by the Sahara Group of India for the Plaza Hotel in New York.

As real estate broker JLL told the Wall Street Journal, it expects Chinese companies to spend more than $5 billion on overseas hotel investments this year, up from $920 million last year and $130 million in 2012. In addition to boosting and diversifying their overseas holdings — and the obvious prestige that comes from high-profile hotel and real estate acquisitions around the world — many of these companies are investing in what they expect to be a future influx of Chinese guests.

According to a 2014 Hotels.com study, Chinese tourists under the age of 35 are becoming more open to the idea of opting for luxury accommodations, as are individual travelers — who are gradually displacing the once-dominant group tourists in terms of volume, length of stay, and overall spending. Once these tourists “graduate up” to luxury accommodations, the logic goes, Chinese-owned high-end properties may feel they have a leg up on the Western competition. (Being able to better add the features Chinese tourists care about, and leverage vast networks within China — particularly in the case of Dalian Wanda.)

For their part, American and European chains continue to angle for Chinese travelers via localized efforts — to continued mixed results. As Mark Podolski, director of sales and marketing for Pacific Palms Resort in California told the LA Times, “We try to pamper [Chinese guests] as much as we can,” adding that the hotel has added special Chinese-focused perks such as teakettles and slippers on the entire eighth floor. However, the question remains, “will they care?” Ultimately, it very well could be Chinese hotel owners with an international presence that provide the answer.

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