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Starwood Expects China to Be Largest Growth Market in 3 Years

Starwood Hotel
The entrance to the St. Regis Lhasa Resort in Lhasa, Tibet, is displayed in this handout illustration released to the media on Monday, Nov. 15, 2010. Photographer: Starwood Hotels via Bloomberg

Starwood Hotels & Resorts Worldwide Inc., which opened China’s first international-branded hotel 26 years ago, expects the nation to be its largest growth market in the next three to four years as it adds more properties.

About 90 Starwood hotels are under construction in China, or 30 percent of its pipeline of 300 properties, President and Chief Executive Officer Frits van Paasschen said. North American locations will account for 20 percent, with the remaining hotels spread throughout the world, he said.

“The difference between China, more than anything else right now, is the absolute magnitude of the growth potential given the size of the economy in its trajectory of development,” van Paasschen said in a phone interview late yesterday. “The growth of China’s economy and urbanization represents an enormous amount of demand.”

Starwood, which operates brands including St. Regis and Westin in China, is expanding as the number of domestic tourists grew 11 percent to reach 2.1 billion in 2010 and will continue to increase as incomes and economic growth spur travel, according to data from Los Angeles-based CB Richard Ellis Group Inc. China is also the world’s third-largest tourism destination, according to the United Nations Tourism Organization.

Van Paasschen led top executives in a one month “relocation” of Starwood’s headquarters to Shanghai from White Plains, New York starting June 8 to July 11 to “better understand” the market and meet local developers, he said. China, the hotel operator’s second-largest market after the U.S., will have a new Starwood property every two weeks this year.

First Global Operator

The company now has more than 70 hotels in China carrying eight of its nine brands that also include Le Meridien and Sheraton. It opened the Great Wall Sheraton Hotel in Beijing in 1985 as the first global operator to enter the market, it said.

Starwood is also entering China’s less affluent or so-called second- and third-tier cities, which van Paasschen said offer “tremendous potential of growth.” That includes the southern Nanhai and Foshan cities in Guangdong province and the eastern coastal city of Qingdao, he said.

“The growth now and in the future is in markets beyond the first-tier cities,” van Paasschen said.

Starwood is working with Chinese developers including Greentown China Holdings Ltd. and Dalian Wanda Group Co., according to the company. Starwood usually expands by securing hotel management contracts from property owners.

China’s housing curbs in the past year and plans by governments of less affluent cities to build business districts are luring developers away from residential developments, especially projects in the biggest metropolitan areas including Shanghai and Beijing. Commercial real estate investment in China jumped 42 percent last year from 2009, said Cushman & Wakefield Inc., the biggest closely held property services company.


Van Paasschen said he’s not worried about an oversupply of hotel rooms as Starwood expands.

“This is a country that will probably see overcapacity in some markets in some period of time, but that slack will soon be absorbed by a continuous rise of demand,” van Paasschen said.

Starwood will open 70 to 80 hotels around the world this year, with about 50 percent of the properties in the Asia-Pacific region, it said.

InterContinental Hotels Group Plc, owner of the Holiday Inn brand, signed an agreement on May 26 with Poly Real Estate Group Co., China’s second-biggest developer, to build and manage hotels in China. One in four of the hotel rooms that InterContinental opens over the next five years will be in China, it said in the statement.

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