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Asia Report Hotel Views 2012

Oct 13, 2011
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ASI A R E P O RT

HOTEL VIEWS 2012

ASIA R E P O RT

HOTEL VIEWS 2012

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A B U S I N E S S A N A LY T I C S G R O U P P U B L I C AT I O N

It gives me immense pleasure and great pride to present to you the first edition of Hotel Views. This publication highlights some of the key hospitality markets within the APAC region. Going forward, it will be our endeavour to include other market information, from both emerging and other markets, that might be of interest to investors. With uncertain economic prospects and pressure mounting in the European markets, the APAC region seems to be weathering the storm. Signs of confidence are returning in certain markets and an underlying mood of cautious optimism is taking hold across the region. Domestic consumption is strengthening intra-regional linkages, and as such, APAC's vulnerability to a global slowdown has been reduced markedly, except for Hong Kong, Singapore and Vietnam, whose economies are largely tied to exports to US and Europe. China and India have seen the most number of hotel openings across the globe and continue to show the most robust pipelines. Mature markets such as Singapore and Hong Kong are witnessing enhanced trading. Of notable interest, Marina Bay Sands Resort and Casino was launched, and, not only did it not have a negative impact on the city's hotel trading, but it is successfully establishing itself as a popular destination, creating high induced demand. So far in 2011, hotel performances in the region have been varied. Some markets perform at par with the previous year, whilst others are showing encouraging signs of improved performances, in either occupancy rates or ADRs, or both KPIs. We anticipate that this will continue through the rest of the year and into 2012, with the latter half of 2012 showing stronger recovery with both occupancy and ADR expected to reflect improvement. In 2012, better performances should lead to improved capital value for existing assets. We expect development opportunities to slow down in the near future as a large influx of supply will enter the markets by 2012 year-end. As markets across the globe recover, investment activity should continue to rise, and with quantitative easing in the US, overseas capital will likely filter into APAC which remains one of the regions with the most attractive growth opportunity. From our own perspective, with renewed commitment to service our clients, we are continuing to expand our network of offices and partnerships across the region with enhanced capability to service many locations in Asia across service lines, ranging from valuation to transactional services. Currently, we are directly involved in projects in China, India, Mongolia, Sri Lanka, Maldives and other parts of Asia Pacific. We hope you will find this Hotel Views of interest. Please contact me or any member of the Cushman & Wakefield team if you would like any further information or wish to join our research mailing list. We thank you and look forward to your continued support! Akshay Kulkarni Hospitality Services - Asia Cushman & Wakefield Akshay.Kulkarni@ap.cushwake.com

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TABLE OF CONTENTS

Executive Summary Asia Pacific Hospitality Market: Regional Overview Regional Performance Bangkok Beijing Colombo Ho Chi Minh City Hong Kong Jakarta

4 5 7 9 11 13 15 17 19

Mumbai NCR - New Delhi Seoul Shanghai Singapore Tokyo Hotel Construction Costs Analysis Hotel Transactions Concluding Remarks

21 23 25 27 29 31 33 34 36

GLOSSARY
ADR: APAC: CAGR: CBD: CPI: FDI: FF&E: FIT: GDP: HCMC: Average Daily Rate Asia Pacific Compound Annual Growth Rate Central Business District Consumer Price Index Foreign Direct Investment Furniture, Fixtures and Equipment Free Independent Traveller Gross Domestic Product Ho Chi Minh City KPI: MICE: OCC: PE: PPP: RevPAR: REIT: YOY: YTD: Key Performance Indicators Meetings, Incentives, Conferences and Events Occupancy Private Equity Purchasing Power Parity Revenue per Available Room Real Estate Investment Trust Year on Year Year to Date

EXECUTIVE SUMMARY
· Since2010,thelodgingsector,throughout the Asia Pacific region, continued to gain a recovery momentum on the back of a strengthening regional economy. · Signsofimprovementhaveevenemerged in Tokyo after the dramatic slide in demand in the aftermath of the Tohoku earthquake. · Ouroveralloutlookforsolidlodging performance in the Asia Pacific remains intact with the continuation of steady regional economic growth. However, elevated downside risks from heightened global economic uncertainty should keep occupancy and pricing gains gradual.

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ASIA PACIFIC HOSPITALITY MARKET: REGIONAL OVERVIEW
ECONOMY 2011 began with high hopes as the Asia Pacific economy successfully adjusted from recovery to solid expansion. Real GDP across the region grew by over 8.0% in 2010, led by Singapore, China, Taiwan and India. Export demand from the Asia Pacific economies has largely supported growth. Notably, the combination of healthier labour markets, buoyant confidence and improving household incomes, has cemented an upswing in consumer demand. In addition, the steady progress in regional free trade agreements (FTAs) has enhanced intra-regional trade, and thus, helped reduce the region's dependence on demand from Europe and North America. Tourism has also been pivotal in propping up the regional economy. The opening of the iconic Marina Bay Sands and Resorts World Sentosa in Singapore and the hosting of 2010 World Expo in Shanghai, China, are some landmark events that helped to catapult the region to further prominence last year. However, the robust growth momentum, rising global commodity and energy prices, and improving labour market conditions are creating inflationary pressures across the region, prompting a series of monetarytightening measures in a number of countries, with the exception of Japan. Thus far in the first half in 2011, Asia Pacific has remained the engine of global growth. The continued strength of domestic demand and still-robust exports have helped the regional economy to maintain a firm footing, albeit the

REAL GDP VS. INFLATION RATE

Real GDP
10 9 8 7
In Percent %

Inflation

6 5 4 3 2 1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Roubini Global Economics

Chart 1

positive momentum has begun to ease. The March 11 tragedy in Japan particularly affected the region through modest disruptions in tourism and export activity. At the same time, the slow economic growth in the USA and Europe are heightening concerns about the region's ability to protect itself from the growing risks. Nonetheless, the Asia Pacific region should manage to hold up in the event of an economic downdraft for several reasons. First, strengthening domestic demand will continue to foster intra-regional linkages, and increasingly decouple the region from developed countries. Moreover, policymakers are gearing up for this transition and with inflation remaining elevated across much of Asia, the region's Central Bankers are expected to shift to a neutral policy. At the same time, governments have ample room to roll out targeted, stimulative spending packages, which are necessary to spur-on their economies. Hence, prospects for GDP growth and job creation within the region remain relatively favourable, but the pace will continue to slow from 2010.

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APAC HOSPITALITY MAIN INDICATORS

Occupancy rate (in %)

2010

2011
Bangkok Beijing Delhi HCMC Hong Kong Jakarta Mumbai Seoul Shanghai Singapore Tokyo

base for further gains in lodging, occupancy and pricing in most cities. However, the Great East Japan Earthquake in March led to a slump in lodging demand, causing occupancy and ADR to slip substantially in Tokyo this year; as such, occupancy and ADR dropped to all-time lows in April 2011. Nonetheless, signs of a rebound have already emerged at the beginning of the third quarter. Going forward, the continuation of slower but solid economic growth, combined with continued government efforts to promote tourism, will continue to spur lodging demand growth within the region. However, persistent uncertainties surrounding the global economy, compounded by wavering business and consumer confidence, are likely to present some challenges for travel demand and, therefore, have the potential to quickly change the demand forecast. Fortunately, supply growth is modest in most major cities and as, a result, any increase in demand should lead to increased in occupancy. Whilst ADR growth will benefit from gradual increases in occupancies, yield management strategies of hotel management teams will be equally critical in continuously building ADR in these tenuous times.

90

75

60

45

30

15

Average Daily Rates (in USD)

2010
Bangkok Beijing Delhi HCMC Hong Kong Jakarta Mumbai Seoul Shanghai Singapore Tokyo 50

2011

100

150

200

250

Source: STR Global © 2011

Chart 2

LODGING PERFORMANCE A favourable economic backdrop has helped the lodging sector to recover throughout 2010. Lodging demand bounced back across all key cities with occupancy levels on an up-trend. However, only Bangkok suffered as violent street protests stifled tourism over the past year. Similarly, pricing showed continued improvement from its low point in 2009, with ADR rising by an average of 3% to 4% in all major cities. As a result, hotels in the region experienced double-digit increases in RevPAR (up 16% to 17%) in 2010. The continued strength in leisure and business travel through the first half of 2011 has provided a strong

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REVPAR (USD) HISTORICAL AND FORECAST 2010 ­ 2012

2010
225

2011F

2012F

180

135

90

45

Bangkok

Beijing

Delhi

HCMC

Hong Kong

Jakarta

Mumbai

Seoul

Shanghai

Singapore

Tokyo

Source: : Cushman & Wakefield Research, STR Global © 2011

Chart 3

REGIONAL MAP WITH FORECAST REVPAR PERFORMANCES

Beijing

+13%



SOUTH KOREA

JAPAN
Tokyo

+10%

Seoul

CHINA

+13% Shanghai
NCR



+2%





-2%

Hong Kong

Mumbai

-1%



+3%

INDIA THAILAND
Bangkok



+4%

VIETNAM
HCMC





+9%

SRILANKA



Colombo



SINGAPORE

+10%



+8%
INDONESIA
Jakarta



Increasing
Source: Cushman & Wakefield Research



Stable





Decreasing

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ASIA PACIFIC HOSPITALITY MARKET: AT A GLANCE
Market Summary KPI 2011 (January to June 2011) ADR Bangkok OCC RevPAR ADR Beijing OCC RevPAR ADR Colombo OCC RevPAR ADR HCMC OCC RevPAR ADR Hong Kong OCC RevPAR ADR Jakarta OCC RevPAR ADR Mumbai OCC RevPAR ADR National Capital Region OCC RevPAR ADR Seoul OCC RevPAR ADR Shanghai OCC RevPAR ADR Singapore OCC RevPAR ADR Tokyo OCC RevPAR
Source: Cushman & Wakefield, STR Global

2011F

2012F

RevPAR 2012

USD100 64% USD64 USD100 64% USD64 USD130 78% USD102 USD128 74% USD94 USD238 81% USD193 USD89 71% USD63 USD191 66% USD125 USD186 66% USD122 USD174 79% USD137 USD123 53% USD66 USD229 83% USD190 USD167 64% USD107

USD102 55% USD56 USD103 64% USD66

USD107 54% USD58 USD115 65% USD75






USD130 69% USD90 USD242 83% USD200 USD91 69% USD63 USD205 60% USD123 USD186 68% USD127 USD182 83% USD151 USD125 66% USD83 USD224 84% USD190 USD171 68% USD116 USD140 70% USD98 USD248 84% USD207 USD98 69% USD68 USD206 59% USD122 USD190 65% USD124 USD200 83% USD166 USD139 67% USD94 USD246 85% USD208 USD173 68% USD119
Table 1















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BANGKOK,THAILAND
ECONOMY The Thai economy is an emerging economy which is heavily export dependent - exports account for over two thirds of the GDP. Developed infrastructure, a free enterprise economy and pro-investment policies have made Bangkok one of the region's best performers, with GDP reaching US$ 319 billion in 2010. Historically, from 1994 to 2011, the country had a GDP growth
BANGKOK GDP (2002 ­ 2010)

rate of 3.85%. However, growth in the second quarter of 2011 was just 2.6%, mainly due to the economic downturn and political instability that stalled economic growth in 2009 and 2010. This caused several mega projects to be stalled thereby reducing investor confidence. Tourism is a main contributor to the Thai economy. With visitor numbers growing toward the last quarter of 2010 and the first two quarters of 2011, Bangkok is poised to see its best economic performance in the last decade. In addition, growth of the Indo-China region has also marginally affected the tourism growth rate and hotel performance. HOTEL PERFORMANCE The hotel industry in Bangkok recently suffered a double setback with the recession and the antigovernment riots following each other in quick succession. Several people were killed in these riots and as a result, several countries issued travel advisories to their citizens advising against travel to Bangkok. However, over the last year, the government has taken strong steps to promote tourism and, as a result, the industry started to recover towards the end of 2010 and

GDP (in USD million)
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Consensus Economics

Chart 4

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
120 100 80 60 40 20

Rev PAR ($)

Occupancy(%)
80% 70% 60% 50% 40% 30% 20% 10%

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 5

low ADRs compared to other large cities in Asia Pacific. Of the 59,000 rooms currently available, 21,000 are in the upper mid-scale segment. The remaining hotels are equally distributed in the midscale, upper-upscale and luxury segment.There are very few hotels in the economy hotel segment. The Bangkok hotel market is fairly saturated and the recession as well as political instability of the recent years will only allow marginal supply increases, with less than 6,000 rooms being added to the city inventory until 2014. Of this increase, the majority of the rooms are in the upper, upscale, and luxury categories.

continued to do so in the first six months of 2011. Statistics show that all key metrics such as Occupancy, ADR and RevPAR declined in 2008, 2009 and most of 2010. However in the first half of 2011, average occupancy increased to 64.1% from 50.8% as at 2010, with ADR increasing to just under US$ 100 over the same period. This has resulted in a double digit increase of RevPAR of approximately 36%. TOURISM ARRIVALS Over the last decade, the Thai tourism industry has been continually affected by dramatic events, ranging from SARS and the Tsunami, to the economic downturn of 2008 and red shirt riots in 2010. However, the third and fourth quarters of 2010 saw the number of tourist arrivals increase to 15.8 million international arrivals, the best year of the Thai tourism industry so far. This was further complemented by 91 million domestic arrivals, representing an increase of 12% over 2009 figures. Arrivals in the first two quarters indicate that 2011 will be even better than 2010. The bulk of international visitors came from Malaysia, China and Japan, with 67% of all international tourist arrivals entering Thailand via Bangkok, whilst the remainder entered through Phuket or overland from Malaysia and Laos. HOTEL SUPPLY In terms of supply, the existing stock consists mostly of hotels in the mid-scale and upper mid-scale segments.This explains the relatively

Photo courtesy of Mandarin Oriental Bangkok

OUTLOOK The pillars of Thai tourism have, for many years, been culture and nature.With the growth of destinations in the Indo-China region, the Thai government and the Bangkok authorities are beginning to explore new avenues to grow tourism revenues. Medical tourism has been heavily promoted in recent years and it is expected to grow to be a mainstay of the tourism industry. In 2009 over 1.5 million foreigners flew to Bangkok for the purpose of medical tourism. The Thai government has also been driving initiatives such as golf tourism and religious tourism to increase footfalls. Going forward the most important factor for hospitality and tourism development will be the political stability of Thailand and a long term tourism outlook.
C&W FORECAST 2012

OCC (%) ADR (USD)

54.2 107



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BEIJING, CHINA
ECONOMY Although still growing at impressive rates when compared to many international economies, the Chinese economy started to show signs of cooling down in 2011. In Beijing, however, real GDP growth is forecast to accelerate to 10.9%, after slowing to 10.2% in 2010. Between 2000 and 2010, the city's economy grew at a CAGR of 19%. Over the same period,
BEIJING REAL GDP (2002 ­ 2012F)

GDP per capita grew at a CAGR of 12%, assessing at approximately US$ 11,750 (CNY 76,620). The Central Government remains concerned over inflationary pressure. For the capital city, the latest Consumer Price Index (CPI) reached 5.2% in the second quarter of 2011, an increase of 2.8% over the first quarter figure. Overall, in China, CPI is forecast to be 5.3% and 4% in 2011 and 2012 respectively. In 2011, the unemployment rate in the capital city is expected to remain at 2010 levels of approximately 1.5%. HOTEL PERFORMANCE The Beijing market, which suffered a decline in 2009 due to over-supply and a general decline in the tourism sector, enjoyed stronger occupancy in all segments in 2010, reaching 63.3% overall, up 11.2% from 2009. Towards the second half of 2010, supported by stronger occupancy, ADR started to pick up again after two years of declining rates and is expected to continue to recover throughout 2011. According to the latest figures from STR Global, in the first half of 2011, Beijing experienced double-digit ADR increases -10.4% to just under US$ 100 (approximately

Real GDP Beijing (RMB billion)
2,000

1,500

1,000

500

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

2012F

Source: Cushman & Wakefield Research

Chart 6

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
160 140 120 100 80 60 40 20

Rev PAR ($)

Occupancy(%)
80% 70% 60% 50% 40% 30% 20% 10%

down to 2% to 3% in the medium term, with a significant number of hotels in the upscale and luxury segment. Notable openings between 2011 and 2015 include two Four Seasons hotels, a W Hotel, a Conrad and a Waldorf Astoria. However, it is expected that supply at the luxury level will slow down to make room to mid-market and budget hotels.

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 7

CNY 647). Hotels are also experiencing healthy growth in occupancy, which is up 4.1% compared to the same period last year, resulting in a RevPAR increase of 18%. TOURISM ARRIVALS In 2010, Beijing attracted over 4.9 million international visitors (up over 18% from 2009 levels) and almost 180 million domestic arrivals. As a result, total visitor arrivals rose 10.3% (to over 184 million) YOY and tourism revenues rose 13.3% YOY to a record US$ 4.09 billion (CNY 27.68 billion). In the first six months of 2011, Beijing received almost 2.4 million overseas visitors, which represent an increase of 3.5% over the same period last year.The largest growth was registered in visitors arriving from the Americas and Oceania, whilst visitors from Asia (including Hong Kong, Macau and Taiwan) and Other visitors declined over the same period by 2.8% and by 52% respectively. Part of the Asian decline might be explained by a drop in visitors from Japan due to the March 2011 earthquake. HOTEL SUPPLY According to the Beijing Tourism Bureau, there were over 729 star-rated hotels in Beijing in 2010. Star-rated supply grew at an annual rate of 6% between 2000 and 2010. Last year, significant openings took place in the city, including the Shangri-La China World Summit Wing and the Langham Place Beijing Capital Airport. According to our research, as the availability of prime sites is limited, we expect supply growth to slow
Photo courtesy of Shangri-La China World Summit Wing

OUTLOOK We expect Beijing to further establish itself as an important destination in China and to further strengthen its political influence in the region. As such, we expect that although the effect of oversupply will continue to be felt in the market, hotels in the capital city will experience a continuous recovery in the medium term. Visitor arrivals are expected to continue to grow. In 2010, Beijing Capital Airport overtook, for the first time, Heathrow Airport in terms of passenger traffic (73.9 million) and became the second busiest airport in the world, according to a report released by Airports Council International (ACI). Plans for a new airport with an annual capacity of 400 million travellers are underway.The new airport will be located to the south of the city and is expected to be operational in 2017.

C&W FORECAST 2012

OCC (%) ADR (USD)

64.9 115



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COLOMBO, SRI LANKA
ECONOMY Sri Lanka has witnessed unprecedented economic growth following the end of three decade civil war that plagued the southern part of the country. The GDP adjusted for PPP in 2010 was US$ 106 billion with an 8% growth rate in 2010, compared to a 3.8% growth rate in 2009. The unemployment rate dropped to 5% in 2010 from 5.5% in 2009. In the first quarter
SRI LANKA REAL GDP (2002 ­ 2010)
GDP at Current Prices (in USD million)
6,000

of 2011, Sri Lanka's GDP registered a 7.9% growth YOY. Colombo is the most significant contributor to the Sri Lankan economy and close to 80% of the industrialisation of the country is seen in the western provinces where Colombo is the major city. The CPI reached 5.6% in 2010 from 3% in 2009, however inflation rates have dropped significantly from the civil war period, when CPI reached 15.8% and 22.6% in 2007 and 2008 respectively. HOTEL PERFORMANCE The end of the civil war had a direct impact on occupancy levels in Colombo. Hotel occupancy jumped to 78% in 2010 from 58% in 2009 and 57% in 2008. ADR increased to US$ 131 in 2010. Close to 39% of the total hotel rooms in Sri Lanka are in Colombo and the Greater Colombo area. Colombo currently has 3,090 hotel rooms, mainly dominated by local brands such as Aiken Spence, Jetwing Hotels and John Keells. Of the total supply, 29% belongs to the upper-upscale segment, 27% to upscale and 21% to luxury. The rest is mid-scale and economy class. A number of hotels that make up the

GDP Growth Rate (%)
9.0% 8.0%

5,000 7.0% 4,000 6.0% 5.0% 3,000 4.0% 2,000 3.0% 2.0% 1,000 1.0%

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: SLTDA (Sri Lanka Tourism Development Authority)

Chart 8

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2005 ­ 2010 HOTEL PERFORMANCES
Total no. of rooms
3,500 3,000 2,500 2,000 1,500 1,000 500

Occupancy(%)
90% 80% 70% 60% 50% 40% 30% 20% 10%

players who are entering the market such as Shangri-La, Movenpick and Six Senses. Some of these players have formed JVs with local hotel companies to enter the market. Until this new supply enters the market, existing hotels should benefit from increased rates and occupancy levels due to a supply deficit in the market as Colombo continues to grow as a tourist and business destination.

2005

2006

2007

2008

2009

2010

Source: Sri Lanka Tourism Development Authority

Chart 9

supply in Colombo are `unclassified' by the government, however they play a significant role in the hotel industry in the absence of branded or star-rated hotels due to lack of supply and relatively higher rates of such hotels. TOURISM ARRIVALS According to the SLDTA, Sri Lanka's tourist arrivals grew to 654,476 in 2010, breaking its previous record of 566,202 in 2004. This growth momentum has been set by the postconflict peaceful environment and relaxation of advisories for travel by major tourist generating countries. India has been traditionally the main country of origin for tourists to Sri Lanka (19.4%), followed by the UK (16.1%). The majority of travellers comprise leisure tourists (78.9%), although this trend saw a marginal decline in the last few years with business travellers on the increase. In 2010, tourism was the single largest growing sector of the economy, at a rate of 39.8% and contributing 0.6% of total GDP. HOTEL SUPPLY The Sri Lankan government has made tourism one of the focus areas of growth and is eager to increase its infrastructure development and is incentivising developers to increase hotel supply in the country. Colombo is poised to see an addition of 750 hotel rooms over the next two years. Of this, luxury hotels comprise 70% of the pipeline with upscale and upper-upscale hotels making up the rest.There are several new

Photo courtesy of Hilton Colombo Hotel

OUTLOOK Early entry will pay healthy dividends in Colombo. The government is targeting 2.5 million visitors in 2016 for Sri Lanka. Given the current room supply, even if this demand is split evenly amongst the principal cities/destinations of Sri Lanka, Colombo will require close to 800 rooms being added every year. The lack of supply would lead to rates rising in the future and stabilising once the supply is completely developed. The focus of the government is to position Colombo, not only as the hub for tourism, but also as the commercial, retail and shopping hub for the country. If they succeed with these plans, Colombo will emerge as a major destination in South Asia.
C&W FORECAST 2012

OCC (%) ADR (USD)



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HO CHI MINH CITY, VIETNAM
ECONOMY HCMC is one of the most important economic centres in Vietnam. It plays an important role in tourism and is a major contributor to the national economy. In 2010, HCMC's GDP per capita was close to US$ 2,800 and the GDP was US$ 20.9 billion. The growth rate was 10.2% against a national average of 6.8%. The
REAL GDP & GDP PER CAPITA - GROWTH RATE % (2002 ­ 2010)
Real GDP YOY Growth rate (%)
30 25

national unemployment rate was 2.9%. The city government, in the 2011 to 2015 economic plan, has targeted a GDP growth of 12% and a per capita GDP of US$ 4,800 by 2015. In spite of these encouraging signs, there is some cause for concerns as the devalued Vietnam Dong has led to a significant increase in CPI, reaching 12.7% in March 2011, which will impact trade deficit. According to the General Statistics Office (GSO) of Vietnam, FDI flow reached US$ 2.3 billion for the first three months of 2011. HOTEL PERFORMANCE The hotel market in HCMC is supported by strong market fundamentals that provide unique cultural offerings and a cosmopolitan city scene. In the first half of 2011, the hotel market performed well, due to the Lunar New Year in February and the VIFA exhibition in March. In the fisrt half of 2011, ADR was US$ 127 and occupancy reached 74%, up 8.3% over the same period last year. Whilst occupancy is recovering to 2008 levels, ADR is still suffering, showing a 21% decrease over 2008 levels. However, the 2011 performance so far indicates that the

GDP Per Capita Growth rate (%)

20

15

10

5

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: HCMC Statistics Bureau & IMA Asia

Chart 10

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
160 140 120 100 80 60 40 20

Rev PAR ($)

Occupancy(%)
90% 80% 70% 60% 50% 40% 30% 20% 10%

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 11

category. The HCMC Tourist Authority expects 6,000 hotel rooms to come online by 2015 in order to meet the increased demand from the MICE segment as well as the strong IT industry that has been generating demand in the city. 2011 will see an additional 800 rooms being added to the city, including both new hotels and extensions. There are currently eight hotels under construction in HCMC with another 17 projects set to commence construction soon. Budget and economy hotels will also experience an increase in supply to cater for this growing segment of the market.

market is recovering well from the economic downturn. This improved performance is mainly due to the strong performance of hotels in the four-star and three-star category, which showed a significant improvement in YOY performance in the fourth quarter of 2010 and the first quarter of 2011. TOURISM ARRIVALS In 2010, HCMC was one of Vietnam's premier travel destinations and welcomed 3.1 million international visitors, a rise of 20% from 2009. According to VNAT (Vietnam National Administration of Tourism), the total number of international arrivals to the city in the first quarter of 2011 was 620,000, representing an increase of 18% from the same period last year. The Lunar New Year contributed to the increased number of international arrivals and led to a 24% increase in tourism revenue YOY. With the recovery of domestic tourism, HCMC is expected to welcome 30 million domestic tourists in 2011. Tourism's expected contribution to GDP is forecast to be approximately 4.5%. HOTEL SUPPLY HCMC has a total of 10,250 rooms in the three-star to five-star categories spread between 75 hotels. Of these, 4,310 rooms are in five-star hotels, 3,887 are in three-star hotels and the remainder are in four-star hotels. The supply is essentially dominated by hotels in the upper mid-scale, upscale and upper-upscale

Photo courtesy of Park Hyatt Saigon

OUTLOOK The government has been actively trying to attract the MICE market with several activities and road shows. HCMC is poised to be a major player in the region, also in terms of health tourism, another segment actively promoted by the government. HCMC is also being promoted as a hub for cruise routes, and could potentially see increased revenues through cruise tourism. A large part of the FDI received by the city is being diverted to the tourism industry to develop hotels and infrastructure. As disposable income continues to rise, domestic tourism demand will play an important role in the future of the city's tourism industry.
C&W FORECAST 2012

OCC (%) ADR (USD)

70.2 140



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HONG KONG, SAR
ECONOMY After a strong recovery in 2010, the Hong Kong economy continued to grow in 2011 but is expected to do so at a marginally slower, albeit still robust, rate. Full-year real GDP growth for 2011 is forecast to be 5.6%, although inflation remains a concern. CPI is expected to accelerate due to high food prices and rising rentals, as well as strong domestic demand. The unemployment
HONG KONG REAL GDP (2002 ­ 2010)
Real GDP Beijing (RMB billion)
2,500

rate is expected to drop from 4.4% in 2010 to 3.2% and 3% in 2011 and 2012 respectively. Tourism is a major pillar of Hong Kong's economy, contributing over HK$ 209.9 billion in 2010 to the local economy (US$ 27 billion). Due to the Renminbi appreciation against the HK$, we expect continued growth in the short term in visitors arrivals from the Mainland, the leading source market of arrivals to Hong Kong. However, as China considers reducing its tariffs on high-end luxury items, tourist arrivals to HK might slow down and the city's high-end retail appeal might decline in the long-term. HOTEL PERFORMANCE Hong Kong usually ranks as one of the top city destinations in the world. Hotels enjoy very strong occupancy rates and healthy ADRs. In 2010, the overall occupancy rate was 81.6%, up 8.3% from 2009 levels. It is anticipated that the market will continue to grow in 2011, and according to latest figures from STR Global, in June 2011, the Hong Kong hotel market experienced a marginal increase in occupancy of 1.4% to 80.8% compared to the same period last

2,000

1,500

1,000

500

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

2012F

Source: Hong Kong Census and Statistics Department

Chart 12

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
250

RevPAR ($)

Occupancy(%)
90% 85% 80%

200

150 75% 100 70% 50 65% 60% 2005 2006 2007 2008 2009 2010

Source: STR Global © 2011

Chart 13

year. In 2010, ADR recovered to 2008 levels and continued to grow in the first half of 2011 by over 25% over the same period last year, resulting in a RevPAR increase of 27% (YTD June 2011 over YTD June 2010). Demand is expected to continue to remain strong, although consideration should be given to the uncertain economic times ahead in the major world's economies, which represent the city's main source markets. TOURISM ARRIVALS A record 19.3 million visitors arrived in the city in the first six months of 2011, the highest half-yearly figure ever recorded.The leading source market is Mainland China, which increased by over 20% over the same period last year, fuelled by the Individual Visit Scheme and the multiple-entry visa arrangement for Shenzhen residents to visit Hong Kong. Overnight arrivals from the Mainland also increased by nearly 12% between January and June 2011 compared to the same period a year ago. Another strong performer was South Korea, which outperformed last year's level by 18.6%. In terms of other markets, of noteworthy interest are Russian arrivals which went up by 50% in the first six months of the year, although starting from a low basis.The HK Tourism Board expects to welcome over 39.6 million people by the end of the year, 10% more than 2010 levels. HOTEL SUPPLY According to the latest statistics published by the HK Tourism Board (June 2011), there are about 804 accommodation establishments with a total

of 67,810 rooms. Of these establishments, 184 are classified as hotels and over 77% are classified as guesthouses (620). 31 hotels are considered `high tariff A' (luxury hotels) with a total of 17,168 rooms, whilst 66 are considered `high tariff B' and 66 `medium tariff'. Between 2002 and 2010, supply grew at a CAGR of 6% and a number of projects have been announced in order to meet the rapidly growing demand, especially from Mainland China. Across all categories, our research suggests that hotel supply will continue to grow in the medium term by approximately 5%. In terms of significant openings, March 2011 saw the Ritz Carlton opening in Kowloon at the top of the International Commerce Centre, making it the world's highest hotel.

Photo courtesy of Rosedale Hong Kong

OUTLOOK The outlook for Hong Kong remains positive as the city continues to enjoy strong growth in both its economy and tourism industry. Plans are underway for the expansion of popular attractions such as Disneyland and Ocean Park. Additionally, the city is considering developing a new cruise terminal, set to open in 2013 after being delayed by a couple of years, which will establish Hong Kong as a new cruise hub in the region. Consideration should be given to the uncertain economic future in Hong Kong's leading source markets and China's plans to decrease the luxury tax.
C&W FORECAST 2012

OCC (%) ADR (USD)

83.3 248



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JAKARTA, INDONESIA
ECONOMY Jakarta is the government and business centre of the country and is supported by industrial estates in Greater Jakarta. Healthy economic growth over the last few years has led to an accumulation of wealth in Jakarta. From 2002 to 2010, Jakarta's real Gross Regional Domestic Product (GRDP) grew at an average rate of approximately 6.2% per annum. It is
JAKARTA REAL AND FORECAST GDP (2002 ­ 2012)
Real GDP (USD billion)
60 50 40 30 20 10

expected to hit US$ 52.4 billion (Rp.443,639 billion) in 2012, up from US$ 26.8 billion (Rp.250,331 billion) in 2002, driven mainly by the city's Banking & Financials, Trade-HotelsRestaurants, and Manufacturing sectors. The city is a business destination as well as a transit city to other tourist destinations within the country. HOTEL PERFORMANCE In the last five years, all hotel market segments have enjoyed positive growth in both ADR and RevPAR, although three-star hotels have reportedly enjoyed better growth momentum than those in the higher categories. Overall, according to the latest figures from STR Global, ADR has recovered after a slight pullback in 2009, bouncing back strongly to post a 13.5% increase YOY in 2010. ADR growth in the first half of 2011 reached 17.5% YOY; RevPAR surged 26.1% over the same period. Occupancies of three, four and five-star hotels have also been on an up-trend over the last five years. As can be seen from the graph on the next page, in the first half of 2011, average

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F 2012F

Source: Central Statistic Agency, 2010

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
90 80 70 60 50 40 30 20 10 50% 2005 2006 2007 2008 2009 2010 55% 60% 65%

RevPAR ($)

Occupancy(%)
70%

In the first half of 2011, total supply of three and five-star hotel rooms in Jakarta was 23,774 rooms, of which 24% are three-star, 40% fourstar and the remaining 36% are in the five-star category. A further 3,419 rooms are expected to enter the market by 2015, of which a total expected supply of about 1,355 hotel rooms would become available in 2012 ­ a high not seen since the 1998 financial crisis.

Source: STR Global © 2011

Chart 15

occupancy rates were at 70.5% as compared to 65.7% in the same period last year. In the first half of 2011, occupancy grew by 4.8 percentage point, continuing their upward trend from its 2009 low point. TOURISM ARRIVALS According to the Airports Council International and BAA, Soekarno-Hatta International Airport in Jakarta served 43.9 million passengers in 2010, ranking it 16 out of 100 of the world's busiest airports by total passenger traffic. Total passenger arrivals grew at a CAGR of approximately 19.4% over the past 10 years, hitting 21.7 million passengers in 2010. Domestic passengers accounted for more than three-quarters of the arrivals at Jakarta's main airport, whilst the remaining 4.9 million were international travellers. In growth terms, in 2010 domestic arrivals were up 16.4% YOY, whilst international passengers grew at a rate of 30.9%. With the proposed expansion of the airport, this upward trend is expected to continue in the near future. HOTEL SUPPLY In line with the rapid development of the capital into a major cosmopolitan city, the Jakarta hotel market began to flourish in the 1990s. About 54% of the 12,937 hotel rooms in Jakarta were developed and opened during this period. Hotels in the city are dominated by properties that cater to business travellers visiting Jakarta and the Greater Jakarta area.

Photo courtesy of Shangri-La Hotel, Jakarta

OUTLOOK In general, demand for hotel rooms in Jakarta is expected to continue to grow in-line with the country's positive economic prospects in the near future. However, room rates will continue to be under pressure in anticipation of the large supply increase. In the short-term, hotels in Jakarta are expected to continue to enjoy growing ADRs, although downward pressure will increase due to the large quantity of new supply that is expected to enter the market between 2012 and 2015. It is anticipated that the hotel market will experience a slight drop in terms of occupancy in 2012 as it absorbs the new hotel stock.
C&W FORECAST 2012

OCC (%) ADR (USD)

68.7 98



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MUMBAI, INDIA
ECONOMY India's GDP growth rate has experienced a downward trend over the last year due to inflation and poor performance by the manufacturing and other sectors.The growth rate for 2011 to 2012 is predicted to be 8.7% as compared to the annual growth of 8.45% between 2004 and 2011. Mumbai contributes close to 6% of the national GDP. From 2005 to
MUMBAI GDP 2005 ­ 2010
Mumbai GDP (USD billion)
500

2011, Mumbai's per capita income grew from US$ 1,271 to US$ 2,879 and the city's GDP grew from US$ 206 billion in 2005 to 2006 to US$ 453 billion in 2009 to 2010. However, due to the global recession and the terrorist attacks in 2008, growth rates dropped between 2008 and 2010. The unemployment rate in Mumbai is 0.53% against a national rate of 9.4%. HOTEL PERFORMANCE The Mumbai hotel industry suffered a severe setback in 2008 due to the terrorist attacks that all but decimated two of the finest hotels in the city. The occupancy levels and the ADR dropped sharply as the city saw demand weaken from both the corporate and leisure sectors. The ADR in 2007 to 2008 was close to US$ 270 before dropping by 35% in 2009. The occupancy rate fell from 74% in 2007 to 57% in 2009. The industry started recovering in 2010 and continued to do so in the first half of the year. According to the first half of 2011data, occupancy was 65% (5% above the same period in 2010) and ADR recorded a marginal increase to US$ 190. RevPAR, which dropped by almost US$ 100

400

300

200

100

2005-06

2006-07

2007-08

2008-09

2009-10

Source: Consensus Economics

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
300 250 200 150 100 50

RevPAR ($)

Occupancy(%)
80% 70% 60% 50% 40% 30% 20% 10%

seeing the benefits of these segments in terms of increased net incomes. Several new brands are poised to enter the city with some of the world's most reputable hotel brands such as W, The Conrad and Park Hyatt scheduled to open in the short term.

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 17

in 2009 (from US$ 199 in 2007 to US$ 104 in 2009), increased by 11% to US$ 125 in the first half of 2011. TOURISM ARRIVALS Though the impact of the terrorist attacks were felt on tourism arrivals in Mumbai in 2009, economic resurgence saw close to 9 million international arrivals and 20 million domestic arrivals via air in 2010 to 2011. The growth in numbers was also attributed to the resurgence of Goa as a tourist destination in the winter of 2010, for which Mumbai is the primary hub. Demand was led by the business segment which accounts for roughly 65%, whilst domestic and international leisure travellers contributed 30%. In 2009 to 2010, the largest number of visitors arrived from the US and UK. According to the Ministry of Tourism, over the last two years the highest growth rates in terms of arrivals, have been from Africa and South America, albeit starting from a low basis, whilst arrivals from South East Asia and the Middle East experienced a decline. HOTEL SUPPLY Mumbai currently has 18,700 hotel rooms, of which close to 8,900 belong to the luxury and upper-upscale segments. However, new supply seems to be concentrated in the upscale or mid-scale segments. Of the 6,200 rooms in the pipeline, 47% are in the upscale and 13% in the upper mid-scale segment. This is a trend being driven by both consumers, who are more price sensitive post recession, and developers, who are

Photo courtesy of Four Seasons, Mumbai

OUTLOOK The lack of space for new development in central and south Mumbai might lead to higher development costs in these parts of the city. In addition, the expansion of the city toward the north and the east due to relatively cheaper land should attract residential and commercial development, thereby leading to increased hotel demand and development.The increase in supply may not be met with a proportionate increase in demand and corporations continue to seek ways to economise post-recession. In 2012, ADR is expected to rise whilst occupancy will experience a marginal drop as compared to 2011 levels. However, these KPIs could experience a lower growth rate compared to pre-recession levels as occupancies and ADRs may drop in the medium term and stabilise in the long term.
C&W FORECAST 2012

OCC (%) ADR (USD)

63.0 206



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NCR ­ NATIONAL CAPITAL REGION, INDIA
ECONOMY The National Capital Region (NCR) in India is a conurbation, which encompasses Delhi, Gurgaon, Faridabad, Ghaziabad, Noida and Greater Noida. With the resurgence of the Indian economy, GDP of the NCR went up by 10.5% as compared to 10.3% in 2009 to 2010. The major contributors to this growth is the
NCR GDP 2004 ­ 2010
NCR GDP (USD billion)
600 500 400 300 200 100

tertiary sector, specifically: Real Estate, Hotels, Banking and Insurance. The per capita income for 2010 to 2011 was US$ 2,132, up 7.7% from 2009 to 2010. The per capita income in the NCR is three times the national average. The NCR region, as a whole, has an unemployment rate of only 0.8% compared to a national average of 9.4%. This is expected to decline given the increased economic activity in the region. HOTEL PERFORMANCE Following the global economic downturn and the negative impact on tourist arrivals of the attacks in Mumbai, the performance of hotels in the NCR has shown an improvement in 2010. Occupancy rates dropped from 74.5% in 2007 to 63.6% in 2009 before rising to 68.8% in 2010. ADR also increased to US$ 189 in 2010 from US$ 178 in 2009. RevPAR also grew 14.9% in 2010 YOY. According to the latest figures from STR Global, in the first half of 2011, occupancy dropped by 2.3% to 65.7%, whilst ADR went up by 1% to US$ 183. As new supply enters the market, we would expect ADRs to

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Source: Consensus Economics

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
300

RevPAR ($)

Occupancy(%)
90% 80%

the prohibitive cost of real estate; however the Delhi International Airport Area will see 14 hotels completed over the next five years.

250 70% 200 60% 50% 150 40% 100 30% 20% 50 10%

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 19

be under pressure and not reach pre-2007 levels. However, overall, hotel performances are expected to improve steadily YOY. TOURISM ARRIVALS Due to the global economic slowdown as well as the threat of terrorism, tourist arrivals, both domestic and international, dropped from 4.4 million in 2008 to 3.9 million in 2009. The Commonwealth Games in October 2010 saw 75,000 visitors arrive in Delhi. The increased capacity of the Delhi airport has also resulted in an increased number of visitors. The total number of arrivals rose from 26.1 million visitors in 2009-2010 to nearly 30 million visitors in 2010-2011. Of current demand, nearly 67% are business travellers and 21% leisure travellers, whilst the remaining demand is derived from MICE and other segments. HOTEL SUPPLY Currently, of the 21,000 rooms in the NCR, Delhi alone holds close to 72% of the inventory and Gurgaon 20%. The distribution in other areas is minimal, with many people staying in hotels in Delhi and Gurgaon and travelling to the other areas. Segment­wise, the distribution is fairly even with mid-scale, upper mid-scale and upscale hotels accounting for a little over 50% of the inventory. In terms of proposed supply, of the 15,000 rooms in the pipeline, Gurgaon and Noida account for a little over 50%, evenly split between the two areas. Central Delhi does not have many additions to inventory due to

Photo courtesy of The Imperial, NCR

OUTLOOK The next three years will witness a large increase in room supply in various categories (especially in the mid-scale and economy segment) and many new brands entering the market. Whilst demand will continue to grow, albeit at a slower pace compared to prerecession times, this increase in supply will outpace growth in demand. This might lead to a dip in occupancy and ADR in the short to medium term, which should consolidate over a period of time. Compared to 2011, occupancy might drop in 2012 due to new supply entering the market, whilst ADR is expected to improve marginally. The majority of the developments will be in the mid-scale and economy segments. As in all recession hit markets, where both FITs and business travellers have begun looking for the more affordable option, the reduced cost of construction and overheads, paired with higher profits, will make these projects more viable.

C&W FORECAST 2012

OCC (%) ADR (USD)

65.3 190



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SEOUL, SOUTH KOREA
ECONOMY Supported by strong international trading activities, South Korea has recovered rapidly from the economic downturn of 2008 and 2009. The nation recorded robust economic growth of 6.1% in 2010. In 2011 GDP is forecast to have more moderate growth of 4.5%, and should pick up once again in 2012 to 4.8%. The unemployment rate, which was
KOREA REAL GDP (2002 ­ 2012)
GDP current prices (USD billions)
1,400 1,200 1,000 800 600 400 200

recorded at 3.7% in 2010, is expected to continue to decrease to 3.5% in 2011 and 3.3% in 2012. Whilst other economic indicators have stabilised since the global financial crisis, elevated inflation remains the biggest concern. The Consumer Price Index (CPI) is expected to rise to 4.0% in 2011, up from 2.9% in 2010. This is likely to impact the overall economy and the government's monetary policies. HOTEL PERFORMANCE With increasing foreign arrivals, the Seoul market reported a strong performance in 2010. All segments experienced healthy increases as the occupancy level reached 83.0%, rising continuously since 2006. Supported by stronger occupancy levels, ADR also maintained its double-digit growth in 2010, resulting in significant improvement in RevPAR, which rose by 17.8% over 2009 levels. With still limited supply in the market despite the increased demand, the current healthy performance is expected to continue throughout 2011. According to the latest figures from STR Global, the first half of 2011, occupancy dropped by 1.8%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: International Monetary Fund 2011

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
200 180 160 140 120 50% 100 40% 80 60 40 20 30% 20% 10%

RevPAR ($)

Occupancy(%)
90% 80% 70% 60%

research, it is expected that the city's hotel supply will increase between 5% and 6% by 2012 as compared to the 2010 supply levels.

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 19

to 78.7%. However, ADR continued to grow, reporting an increase of 17.7%, resulting in a RevPAR increase of 15.0%. TOURISM ARRIVALS At about 8.8 million, total foreign arrivals robustly increased in 2010, exceeding the nation's forecast with growth of 13% from 2009 arrivals. The surge in tourist arrivals directly benefitted the Seoul hotel market. Most tourists originated from Asia Pacific, mainly from Japan, the largest market, which comprised about 34% of 2010 arrivals. The Chinese market grew substantially with an annual growth rate of 27% since 2008. Arrivals from western nations (including USA) has also picked up significantly. In the first six months of 2011, total foreign arrivals increased by 4.1% YOY, despite a decrease in Japanese arrivals due to the March 2011 tragedy. HOTEL SUPPLY According to the Korea Tourism Organization, there were 138 hotels with 23,644 rooms in Seoul at the end of 2010. Whilst new supply in the city has been very limited in the last decade, the government is eager to boost new hotel development with a series of incentives as part of a strategy to promote its tourism industry in the light of continued, strong market performance. Based on the perception that the mid-scale hotel segment is a more profitable product, new hotel developments are mostly focused in this segment. According to our

Photo courtesy of Samsung Everland

OUTLOOK As a result of a strong national promotion of the tourism sector, demand would stay robust in the medium term especially due to a sturdy leisure inbound market. It is expected that growth in the Japanese market would become marginal but the Chinese market will grow enough to compensate any shortfall in other source markets. The Korea Tourism Organization has forecast that foreign arrivals will grow by 5.3% in 2011 and by 3.2% in 2012. Furthermore, Pyeongchang was chosen to host the 2018 Winter Olympics which will enhance awareness of Korea as a destination for winter sports and boost the tourism demand in the long term. Current high demand is expected to offset the increased new supply in the short-medium term. Whilst planned new development projects will determine actual supply, there is also a risk of oversupply, should any unexpected fluctuation in demand occur.
C&W FORECAST 2012

OCC (%) ADR (USD)

82.9 200



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SHANGHAI, CHINA
ECONOMY Shanghai's real GDP growth is forecast to accelerate to 11.4%, after recovering in 2010, when real GDP grew at 9.9%. Between 2000 and 2010, the city's economy grew at a CAGR of 13%. Over the same period, GDP per capita grew at a CAGR of 11%, assessing at approximately US$ 13,220 (CNY 86,265). Although measures
SHANGHAI REAL GDP AND FORECAST (2002 ­ 2012F)
Real GDP Shanghai (RMB billion)
2,500

are in place to control inflation, Shanghai's latest CPI reached 5.3% in the second quarter of 2011, an increase of 3.2% over the first quarter figures. Overall, China's CPI is forecast to be 5.3% and 4%. In 2011 and 2012, despite a buoyant economic environment, the unemployment rate in the city is expected to remain flat at 2010 levels of approximately 4.25%. HOTEL PERFORMANCE In 2010, the overall occupancy rate was 63.6%, up 14% on 2009 levels, whilst ADR grew nearly 20% over 2009 rates. Hotels experienced these healthy performances mainly due to the Shanghai Expo. However, it is anticipated that the market will suffer a decline this year as leisure demand is expected to drop and the city should experience an over-supply situation as many hotels were opened in the build-up to the Expo. According to the latest figures from STR Global, in the first half of 2011, the Shanghai hotel market experienced a drop in occupancy of 8% to 53.3% over the same period last year. However, ADR grew marginally by 2.3%, resulting in a RevPAR decrease of 11%.

2,000

1,500

1,000

500

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

2012F

Source: Cushman & Wakefield Research

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
160 140 120 100 80 60 40 20

RevPAR ($)

Occupancy(%)
80% 70% 60% 50% 40% 30% 20% 10%

the Fairmont Peace and the Waldorf Astoria. Based on our research, we expect hotel supply to continue to grow at approximately 6% over the medium term. Openings in the next few years include the Mandarin Oriental Shanghai, four Marriott projects and three Swire Hotels. In addition, Disney will open its first mainland China resort. The Shanghai Disneyland Theme Park could be a catalyst for tourism to the city upon its completion in 2015-2016.

2005

2006

2007

2008

2009

2010

Source: STR Global © 2011

Chart 23

TOURISM ARRIVALS Shanghai had an excellent year in 2010 as a result of the 2010 World Expo which took place over a period of six months and was visited by 70 million visitors, including 6.2 million overnight visitors. The city registered over 188 million visitors in 2010, driven mainly by domestic visitor arrivals that reached approximately 180 million, whilst international visitors made up 8.5 million. In the first six months of 2011, Shanghai welcomed a little over 3.9 million international arrivals, up 1% over the same period last year. The local government is eager to strengthen its tourism industry and expects tourism to be contributing 8.5 percent to the city's GDP by 2015. The city plans to attract 240 million domestic arrivals by 2015, an annual 2.3% increase over current levels, and attract 10 million overseas visitors, reflecting an annual growth of 4.6%. HOTEL SUPPLY According to the Shanghai Municipal Statistics Bureau, there were fewer than 300 hotels in the city, with 65,100 rooms in 2010. However, statistics reported no increase in the number of hotels in 2010 from 2009, whilst hotel rooms increased by 3,840 over the same year. As hotel development accelerated in the run-up to the Expo, it is possible that some establishments have yet to apply for star-rating accreditation with the local government and, as such, do not appear in the figures reported. Notable openings in 2010 included the Peninsula Shanghai, the Ritz Carlton Shanghai Pudong,

Photo courtesy of Shanghai Tower and J Hotel

OUTLOOK Although suffering from an oversupply situation, the fundamentals of the hotel market in Shanghai remain strong. As the city continues to strengthen its position as a financial hub in the APAC region, its economic outlook remains positive in the medium term, although the government remains vigilant against overeating and inflationary pressures. Additionally, due to the Expo and the facilities developed for the event, the city is positioning itself as a MICE destination in the region. Demand for hotels in the city is expected to remain strong over the medium term, ecovering both in terms of occupancy and ADRs.
C&W FORECAST 2012

OCC (%) ADR (USD)

67.1 140



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SINGAPORE
ECONOMY Singapore's economy grew by a staggering 8.3% in the first quarter of 2011 but slowed to 0.9% growth in the second quarter of 2011. Overall, Singapore is still poised for an expected growth of 5% to 6% for the whole of 2011, although the forecast has been trimmed from an earlier

forecast of 5% to 7%. Supported by healthy visitor inflows, tourism-related sectors continued to improve, with the hotels and restaurants sector and the "other services" industries growing by 6.4% and 5.0% on a YOY basis in the second quarter of 2011. Marina Bay Sands integrated resort's net revenue for the second quarter of 2011 totalled US$ 737.6 million.The resort produced a record US$ 405.4 million of adjusted EBITDA for the second quarter. HOTEL PERFORMANCE Singapore's hotel market started on a bright note in the first half of 2011. Sustained economic fundamentals, visitor arrivals and the increased visibility of new attractions such as the Marina Bay Sands and Resorts World integrated resorts contributed to continued strong hotel occupancy and room rates. In 2010, the occupancy rate recovered to pre-2008 levels, averaging 83.2% for the whole year. Occupancy rates in the first half of 2011remained in the upswing over the same period averaging 83.2%, up 0.3% and 14.3% in 2010 and 2009 respectively. With favourable occupancy rates through the first half of 2011,

SINGAPORE GDP AND FORECAST (2002 ­ 2012)
GDP current prices (USD billion)
350 300 250 200 150 100 50

2002

2003

2004

2005

2006

2007

2008

2009

2010 2011F 2012F

Source: International Monetary Fund 2011

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
250

RevPAR ($)

Occupancy(%)
85%

200

80%

150 75% 100 70%

50

gaming. Hotels completed in the first half of 2011 accounted for a 10% increase and were larger mid-tier properties, which include Hotel Ibis @ Novena, Oasia Hotel at Sinaran Drive, which specifically targets medical tourists, and V Hotel Lavender at 70 Jellicoe Road. Notably, the Oasia Hotel is the first and the flagship property of a new brand from Far East Hospitality, a hospitality arm of one of Singapore's largest private property developers, Far East Organization.

65% 2005 2006 2007 2008 2009 2010

Source: STR Global © 2011

Chart 25

ADR increased from US$ 180 to US$ 229, reflecting a 27% increase over the same period last year. RevPAR rose from US$ 150 per room in the first half of 2010 to US$ 190 per room this year through June 2011. The RevPAR in 2010 also rebounded strongly from US$ 109 per room in the first half of 2009. TOURISM ARRIVALS Singapore attracted a record yearly high of 11.6 million visitors in 2010, exceeding the previous year's number by 20.2%. The increase was largely due to the opening of the two large integrated resorts at Sentosa and Marina Bay and strong economic recovery during the year. Looking at the results for the first half of 2011, the number of visitors already exceeded that of the first half of 2010, totalling 6.35 million visitors to Singapore. The top five markets in 2010 were Indonesia, China, Malaysia, Australia and India. However, the strongest growth was recorded by Malaysia, followed by Thailand, South Korea, Indonesia and Hong Kong. HOTEL SUPPLY According to government data, the stock of hotel space increased significantly in 2010. As at end 2010, hotel rooms in the city state totalled about 38,375, reflecting a 13% increase compared to 2009.The increase was largely due to the opening of the Marina Bay Sands hotel (2,511 rooms) and the hotels in Resorts World Sentosa (1,378 rooms), which cater to domestic and international guests who visit the resorts for leisure and
Photo courtesy of Marina Bay Sands Hotel Singapore

OUTLOOK Hotel occupancy can potentially maintain its positive momentum for the first half of 2011 notwithstanding economic challenges from the US and Europe's financial turmoil. Fundamentally, Singapore's economy remains intact.The integrated resorts and new shopping clusters in Orchard Road and Harbourfront will continue to appeal to visitors. Singapore maintained its spot in August 2011 as one of the top five convention cities for the 9th consecutive year, alongside Vienna, Barcelona, Paris and Berlin as ranked by International Congress and Convention Association (ICCA).The accolade and the comprehensive convention facilities will further strengthen the MICE segment in Singapore, benefitting hotels which have extensive experience in catering to the needs of such travellers.
C&W FORECAST 2012

OCC (%) ADR (USD)

84.5 246



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TOKYO, JAPAN
ECONOMY The impact of the Great East Japan Earthquake on Tokyo's economy continues to unfold but in a less severe manner. The anxiety on rolling blackouts has eased and life in Tokyo seems to have returned to normal despite longterm uncertainties. The nation's constrained economic growth in the first half of 2011 is likely to reverse when reconstruction activities
JAPAN GDP AND FORECAST (2002 ­ 2012)
GDP current prices (USD billions)
7,000 6,000 5,000 4,000 3,000 2,000 1,000

are in full swing. However, the currently strong Yen has become a concern as it can hinder international trading activities in the short term. Also, long term uncertainties remain along with fundamental socio-economic changes; the possible increase of business relocation from Japan to other emerging economies and demographic changes resulting from increasing senior population (aged 65 and older) as well as decreasing population in production age (aged 15 to 64). HOTEL PERFORMANCE The Tokyo hotel market has suffered from a series of events over the last couple of years. Since 2007, oversupply became an issue, and then the market, like other global cities, was impacted by a decline in business travel. Just as the city was about to see some rebound in the second half in 2010, matters took a turn for the worse due to the earthquake disaster in March 2011 and the event hit the international inbound market the hardest. The occupancy level in the first half of 2010 picked up by 8.0% from that of 2009, however it fell to 64.3% in

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F 2012F

Source: International Monetary Fund 2011

Chart 26

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2005 ­ 2010 HOTEL PERFORMANCES
ADR ($)
250

RevPAR ($)

Occupancy(%)
82

200

80

78 150 76 100 74

50

72

70 2005 2006 2007 2008 2009 2010

HOTEL SUPPLY According to the Metropolitan Tokyo Government, the Tokyo hotel market had 553 hotels with 86,985 rooms in 2010. Whilst supply has slowed down in response to the subdued demand for hotels, new supply within this large metropolitan area has not vanished. According to our research, it is expected that the city's hotel supply is likely to increase between 1% and 2% by 2012 compared to the 2010's existing supply.

Source: STR Global © 2011

Chart 25

this year through June 2011with a decrease of 13.5%. Meanwhile, ADR decreased, to US$ 161 in the first half of 2010. Rates, however, picked up in the first half of the year, with a 3.9% increase over the same period in 2010, recording US$ 167. As a result, RevPAR decreased by 14.1% from the same period in 2010. TOURISM ARRIVALS In 2010, Japan reported about 8.6 million foreign arrivals, up 26.8% from 6.8 million in 2009. The surge in arrivals came from the Asia Pacific region, which made up 35% of total arrivals. South Korea and China led the overall growth. The portion of tourists also increased from 70.1% in 2009 to 73.9% in 2010. However, this rebounding of foreign arrivals suffered a sharp decrease in 2011 due to the earthquake; foreign arrivals in March and April 2011 dropped by 50.3% and 62.5%, respectively, from the same months' results in 2010. The sensitive leisure market led this dramatic decrease, especially in April, declining by 82% compared to June in 2010. June showed a slower decrease in arrivals compared to first months after the earthquake, which reflected a negative growth of 36.0%. Overall, the nation received 2.8 million arrivals in the first half of 2011, a decrease of 48.3% from the same period in 2010.

Photo courtesy of Route Inn Tokyo

OUTLOOK Whilst the whole nation strives to recover from the disaster, the city's hotel market is likely to take some time to return to preearthquake levels. Whilst corporate travellers are expected to continue to travel to the city, the leisure market will recover only when the concerns from current disaster are eased. Therefore, demand is expected to either reflect no growth or a marginal growth in the short term. The leisure market, which will recover eventually, will likely boost demand growth in the medium to long term. The current market performance will hinder the activities for new supply, resulting in moderate supply increase in the medium term.
C&W FORECAST 2012

OCC (%) ADR (USD)

68.5 173



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HOTEL CONSTRUCTION COSTS ANALYSIS 1
This section is a snapshot of the construction costs involved in developing hotels in the different regions of Asia.The information has been collated through international and local hotel operators and developers in these regions.The tables below show the approximate per room cost of developing hotels in China, India and other regions of APAC.These tables also show the difference in costs of developing hotels across different segments such as budget, mid-scale, upscale and luxury.The tables also reveal the difference in constructing hotels in urban area as well as retreat hotels.Where possible we have also reflected the costs of setting up serviced apartments in these regions.

INDIA The table below shows the approximate cost of developing hotels in India, irrespective of whether they are urban hotels or resort hotels. These costs cover the entire cost of construction including FF&E, Services, ID and Pre-Opening Costs. The approximate FF&E cost per room is US$ 20,000 to US$ 40,000 for budget, US$ 40, 000 to US$ 60, 000 for mid-scale and US$ 50,000 to US$ 100,000 for upscale and luxury hotels.These costs are higher as a lot of the FF&E are imported into India and even with the government reducing imports for new hotels, the overall percentage of FF&E costs remain high. However, the costs in developing hotels are lower than developing hotels in other regions of APAC due to the relatively low cost of labor. However the time taken to develop hotels is longer across all hotel segments.

APPROXIMATE BUILDING TIME (IN YEARS)
INDIA Budget Mid-scale Upscale Luxury
Source: Cushman & Wakefield (in house survey)

CHINA AND KOREA 1.5 2.5 3.0 3.5

APAC 2.0 2.5 3.0 3.5
Table 2

2.5 3.0 3.5 4.5

INDIA: COST PER ROOM (IN USD)
BUDGET Urban Resorts Serviced Apartments FF&E Cost Pre Opening Cost < 20,000 3,100-4,000 41,000-60,000 41,000-60,000 MID-SCALE 81,000-100,000 61,000-80,000 61,000-80,000 21,000-40,000 5,100-6,000 41,000-60,000 81,00-10,000 61,000-80,000 9,100-15,000 UPSCALE 131,000-160,000 131,000-160,000 UPPER UPSCALE 161,000-191,000 161,000-191,000 LUXURY 191,000 < 191,000 < 191,000 < 81,000-100,000 15,000-30,000
Table 3

Source: Cushman & Wakefield (in house survey)

____________________________________________ 1

These estimates have been prepared from a construction cost survey that was sent out in August 2011. Figures are shown in an aggregate form. Costs should include FF&E and other fees. Land costs and local taxes are excluded. These estimates are prepared to present general room cost trends and differences in markets. Exchange rates and inflation can distort generic data. Users should verify the suitability of general cost data to their specific circumstances.

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CHINA Compared to India, the cost of developing hotels in China is relatively high for the same segment of hotels. This could be caused by higher cost of labour, the comparatively higher cost of structural steel and the increased taxes on lumber from Russia, which is one of China's major sources for lumber. As a large portion of the FF&E is still outsourced, these costs also tend to be higher and are expected to climb further in 2012. China, however, has the faster construction time across all hotel segments. The table below also includes the construction costs in Korea, which mirror the costs in China.
CHINA: COST PER ROOM (IN USD)
BUDGET Urban Resorts Serviced Apartments
Source: Cushman & Wakefield (in house survey)

APAC The table below includes the costs of developing hotels in other countries in APAC such as Thailand,Vietnam and Sri Lanka. Whilst the governments in these countries are increasing their efforts to develop hotels and drive tourism, there is relative lack of resources and a need to import a large quantities of equipment required to develop and construct hotels. The relative construction time, in these regions however, is less than in India and almost on par with China.

MID-SCALE 131,000-160,000 161,000-220,000 131,000-160,000

UPSCALE 221,000-300,000 221,000-300,000 221,000-300,000

LUXURY 301,000-400,000 301,000-400,000 221,000-300,000
Table 4

21,000-60,000

APAC: COST PER ROOM (IN USD)
BUDGET Urban Resorts
Source: Cushman & Wakefield (in house survey)

MID-SCALE 126,000-150,000 126,000-150,000

UPSCALE 176,000-200,000 176,000-200,000

LUXURY 250,000 < 250,000 <
Table 5

76,000-100,000

HOTEL TRANSACTIONS
Hotel transactions picked up steam in the last quarter of 2010 and in 2011 with hotel performance improving considerably. There is a strong demand for hotel assets with the change in the market environment. In Asia there has been a lot of activity, not only in terms of buying and selling of hotel assets within the different markets in Asia, but also of Asian investors buying assets in the Americas and in Europe. With the outlook remaining positive for all the key cities in the region, investors are looking to capitalise on the

projected market growth. Natural disasters in Japan and other parts of Asia, and acts of terrorism in India have done little to dampen this enthusiasm. The investment activity for the region in the first and second quarter has been led by Singapore, followed by China, Japan and Hong Kong. Markets like India and South Korea, which saw no transactions in the same period in 2010, witnesses increased levels of activity in terms of hotel transactions. Major transactions were led by private investors or REITs, mostly through cash deals based on projections of improved performance, with the possibility of raising capital in the medium term. Whilst recently, one of the

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primary reasons for increased investment activity has been the enhanced value of the asset, in some markets such as India, many transactions involved non-completed hotel development projects that experienced cashflow issues and struggled to raise additional funding. Additionally, in developing markets, hotel owners, private investors and funds funded their brand expansions through the disposal of their assets, thus contributing to such increased investment levels. Established REITs as well as hotel companies seeking to launch such investment vehicles, have been in acquisition mode particularly for new hotel developments, mainly driven by their lower

2011 TRANSACTION VOLUME (USD MILLION)
COUNTRY China Hong Kong India Japan Singapore South Korea Thailand Vietnam Total
Source: RCA and Cushman & Wakefield

YTD Q2 2011 337.5 203.0 34.8 282.3 641.8 236.1 43.0 104.7 1,883.2
Table 5

QUARTERLY TRANSACTION VOLUME (USD MILLION)
China
1,800 1,600 1,400 1,200 1,000 800 600 400 200

Hong Kong

India

Japan

South Korea

Thailand

Vietnam

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

2011 Q2

Source: RCA and Cushman & Wakefield

Chart 25

cost of capital. For PE firms, hotel acquisition has been one of the ways to utilise funds raised prior to the downturn, which had been sitting on the sidelines in 2008 to 2009. Crossborder transactions have soared in the last few years as investors are looking to maximise their returns by investing in countries and assets with attractive capital appreciation. In 2011, many Asian and in particular Chinese investors have been increasingly looking at opportunities in major US gateway cities. One of the most significant transactions was the acquisition of Rosewood Hotels & Resorts by

the Cheng family (New World Development) for $229.5 million. As assets begin to generate greater cash flows, we expect transaction activities to remain buoyant in the short to medium term. Major transactions will continue to be seen in Singapore, China and potentially in India due to the large amount of debt refinancing coming up in 2011 to 2012. REITs are expected to continue to lead the market due to their lower costs of capital.

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CONCLUDING REMARKS
Although the economic fundamentals of the cities' reviewed in this paper remain strong, we expect challenging times ahead. As hoteliers across the region react to macro and micro economic fluctuations, we would anticipate that a variety of factors will influence the markets' KPIs in the short term. Besides local factors playing role, global issues, such as oil prices, government policies and real estate prices across the world, will have an impact on the region's hotel performances as well as on the availability of capital that can be invested in the region. In many APAC countries, new development should continue at a similar pace to 2010, although we expect that, given the uncertainties in the global economy, new projects might have difficulties in sourcing funding and breaking grounds. In addition, certain markets might suffer in the short term due to new supply coming online and impact operating figures in the near future. Should the influx of supply continue to slow down, we expect to see improved KPIs and operating figures. As a result, the development pace might improve in the medium to long term. In recent years, China and India experienced rapidly increasing hotel supply. Both countries continue to report the largest number of projects in the development phase, mainly supported by strong economic growth and investors' appetite for capital appreciation in these markets. Tokyo should rebound from the March 2011 Tohoku earthquake, as the rebuilding process starts and the country's economy recovers. Bangkok may not enjoy stronger operating performances, however, capital values might appreciate due to the city's limited hotel stock. Seoul's hotel performances should remain strong and the market will witness an increase in development activities, particularly in the mid-scale segment of the market. We believe that the two markets to watch will be HCMC and Colombo. These two cities are attracting interest from operators and investors alike and we expect them to be the `hot' markets next year. Singapore's hotel performances remain stable as the city established itself as a key tourism destination as well as an important financial hub for the region. As new development continues to be controlled and regulated, we envisage that new additions to supply will have minor effects on hotel performances. Furthermore, we expect hotel capital values continue to grow steadily. Whilst economic prospects for Western countries appear uncertain, Asian economies are weathering the storm as their economic dependance on the West reduces. The slowing down of economic activities and debt crisis in the West might impact international leisure and corporate travel. However, the APAC region is demonstrating to have a strong domestic and regional market base, that is a result of enhanced intra-regional trade and increasing tourism activities. As such, our outlook for the region remains positive in overall terms.

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CONTACTS

AKSHAY KULKARNI Executive Director, Head of Hospitality South Asia Mumbai Office Tel : (+91 22) 220 25124 Akshay.kulkarni@ap.cushwake.com

SIGRID G. ZIALCITA Managing Director Research, Asia Pacific Singapore Office Tel: +(65) 6535 3232 Sigrid.zialcita@ap.cushwake.com

PAOLA ORNELI Associate Director, Head of Hospitality, Greater China Beijing Office Tel: +(86 10) 5921 0823 Paola.orneli@ap.cushwake.com

SOO JIN Advisory Seoul Office Tel: +(82 2) 3708 8869 Soo.jin@ap.cushwake.com

CHINA Address: 6F, Tower 1, China Central Place No. 81 Jianguolu, Chaoyang District Beijing, China 100025 Tel: 86 10 5921 0808 HONG KONG Address: 6th Floor, Henley Building 5 Queen's Road Central Hong Kong, China Tel: 852 2956 3888 INDIA Address: 14th Floor, Tower C, Building 8 DLF Cyber City Gurgaon, India Haryana-122002 Tel: 91 124 4695555 INDONESIA Address: Jakarta Stock Exchange Building Tower 2, 15th Floor Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190 Tel: 62 21 2550 9500

JAPAN Address: Sanno Park Tower 13F 2-11-1 Nagatacho Chiyoda-ku, Tokyo, Japan 100-6113 Tel: 813 3596-7070 MALAYSIA Address: Lot 3A-1, Level 4,Wisma W1M 7 Jalan Abang Haji Openg Taman Tun Dr Ismail Kuala Lumpur, Malaysia 60000 Tel: 603 7728 8116 PHILIPPINES Address: 5th F S&L Building 101 Esteban St. cor. Dela Rosa St. Legaspi Village, Makati City 1229, Philippines Tel: 632 750 6610 SINGAPORE Address: 3 Church Street #09-03 Samsung Hub, Singapore 049483 Tel: 65 6535 3232

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SOUTH KOREA Address: 5/F Korea Computer Building 21 Sogong-dong, Jung-gu Seoul, South Korea 100-070 Tel: 822 3188 322 TAIWAN Address: REPro International Inc. 13F-2, No. 89, SongRen Road Exchange Square One Taipei,Taiwan Tel: 886 2 2758 6000

THAILAND Address: 31st FI., Bangkok Insurance Building / Y.W.C.A. 25 South Sathorn Road, Thungmahamek, Sathorn Bangkok 10120,Thailand Tel: 02 286 8899 VIETNAM Address: Room 602, Asia Tower, 6 Nha Tho street, Hoan Kiem district, Hanoi,Vietnam Tel: 84 4 3938 1786

Cushman & Wakefield Hospitality has a global capability offering a full range of hotel, leisure and tourism advisory, valuation and transaction services to investors, governments, institutions, hoteliers and developers around the world. We have expertise across all hotel, leisure and tourism sectors, from hotel consultancy to valuations and asset brokerage to master-planning small and large scale mixed-use developments. Our expertise is firmly grounded in hotel operations and tourism sector experience, in addition to real estate, and our clients enjoy an unbeatable combination of large-scale resources, specialised industry knowledge, key relationships and a global infrastructure to meet hospitality needs in any market. www.cushmanwakefieldhospitality.com

Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 234 offices across 61 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within four primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, valuation services, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, and Consulting Services, including business and real estate consulting. www.cushmanwakefield.com

For more information about C&W Research, contact: Sigrid G. Zialcita Managing Director Research, Asia Pacific +(65) 6535 3232 Sigrid.zialcita@ap.cushwake.com

© 2011 Cushman & Wakefield, Inc. All rights reserved.

3 Church Street, #09-03 Samsung Hub, Singapore 049483 Tel: +65 6535 3232 Fax: +65 6535 1028

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete.

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