The latest tourism figures released by the Australian Bureau of Statistics paint a remarkably positive picture of Chinese tourism to Australia.
Not only did the Chinese inbound figures pass the ‘magic million’ mark in the past year – an increase of over 19 per cent on the year to April 2016 – but Chinese tourists now account for 23 per cent of total expenditure (over $7 billion) by overseas visitors.
In 2009, Chinese tourism to Australia numbered less than 350,000, and tourists could only fly from five Chinese cities. Today, they can fly direct from ten cities, and the prospects for further expansion in the future were highlighted by the announcement last month by China’s biggest private airline operator, HNA Aviation Group, to take a 13 per cent (AUD$159 million) stake in Virgin Australia.
This was followed up shortly after when China’s Nanshan Group complemented the opening of their first Australian hotel – Pullman Sydney Airport – by announcing they would buy Air New Zealand’s 19.9% stake in Virgin for $260 million.
Seismic change in attitude
China’s interest in the Australian tourism sector over the past five years has been intense, but it has to be rememered that it wasn’t too long ago that the Australian hotel sector was unsure about the China market, and the role it would play compared to the traditional inbound markets such as USA, Europe and Japan which were all decimated by the GFC.
However, the arrival of 8,000 Amway representatives in a ‘five-star only’ incentive tour to Sydney in January 2011, highlighted that the old views of the China market needed to be thrown out and the remarkable potential embraced.
That visit, which netted the NSW economy over $40 million, heralded a seismic change in attitude towards China. Rather than being seen as ‘volume business’ during periods of low demand, Australian hoteliers established innovative programs such as Accor’s Chinese Optimum Service Standards to demonstrate to the Chinese market that they not only valued their business but were prepared to go the extra mile to secure long-term demand.
Casting aside the image of mass, heavily discounted shopping trips, a new breed of experienced Chinese traveller began to emerge, along with high-yielding incentive groups, and they were interested only in premium accommodation and travel experiences. They wanted five-star accommodation and were prepared to pay for it – but they also demanded five-star service.C
The success of the Chinese inbound market undoubtedly played a key role in encouraging Chinese investors to enter the Australian tourism property sector, which had previously been dominated by South East Asian and Hong Kong interests.
The visit of President Xi Jinping in 2014, progress towards a China Free Trade policy, and a greater understanding of how to deal with the Chinese all played their part in growing the relationship, which saw Chinese investors account for a third (by volume) of Australian hotel transactions in 2015.
Chinese investors have picked up some of the cream of Australia’s hotel crop in the past few years, including Sunshine Insurance agency’s $463 million purchase of Sydney’s Sheraton on the Park, followed closely by an entity associated with Bright Ruby’s purchase of Hilton Sydney for $442 million. Chinese investors also acquired the Park Hyatt Melbourne and transformed the former Sydney Metropolitan Water Sewerage and Drainage Board HQ in Pitt Street, Sydney into the five-star Primus Hotel.
While these acquisitions demonstrated the Chinese appetite for buying premium ‘trophy’ assets in CBD locations, the purchase of the Adina Mascot, Clarion on Canterbury Melbourne, Esplanade River Suites Perth and Il Mondo Boutique Hotel Brisbane also reflects a willingness to invest in a range of hotel assets across emerging commercial districts or fringe precincts.
The increasing level of activity amongst new hotel developments, including Primus Hotel and Pullman Sydney Airport, also reveals a maturing of the Chinese investment market. They now have a thorough understanding of the market and therefore the confidence to proceed with such projects.
The $84 million Pullman Sydney Airport is part of a mixed-use site developed by the Goodman Group. It was bought by the Shandong-based industrial Nanshan Group, which has diversified from manufacturing to real estate and hospitality. Nanshan had smaller real estate interests in Australia – including Sydney’s Riverside Oaks golf course – before they went on to purchase the Pullman and the sizeable stake in Virgin Australia, cementing their interest in Australia’s tourism sector.
It is tempting to question whether this is a special period in the investment cycle or whether we can view the appetite for Chinese investment in the Australian hotel sector as the ‘new norm’?
Analysis of Chinese investment over the past three years shows that they are making very sensible, strategic investments, which is completely different to the approach that characterised a sizeable percentage of Japanese investment in Australia in the 1980s/90s.
Australia’s tourism sector has plenty of reason to thank Japanese investment companies such as EIE and Daikyo for developing Australia’s modern tourism economy in the 1980s and 1990s, particularly in destinations such as Cairns and the Gold Coast, but eventually they left with a fraction of the money they put into extravagant hotel developments, golf courses and tourism attractions.
While the Chinese economy has undoubtedly cooled in recent times, and Australian governments have become more restrictive about Chinese investment in some real estate sectors, the flow of funds into Australian tourism ventures continues.
A deeper relationship
Clearly, the Chinese are taking a wide ranging and long term view when it comes to the Australian tourism market and this has been reflected in a series of astute and strategic purchases of Australian assets and business.
Australia’s reputation for economic stability, the record breaking performance of the hotel sector in cities such as Sydney and Melbourne, and ever-increasing airline links to Australian ports have fuelled the interest in Australian hotel assets by Chinese investors.
Just as importantly has been the evolution of Australia’s attitude towards Asia in the twenty five years since the end of the Japanese investment boom. Australia has firmly committed itself to being an integral part of the Asia Pacific region, with the high-profile involvement of politicians such as former PM, Kevin Rudd, and Coalition trade ministers Andrew Robb and Steve Ciobo, leading the way.
The fact that business and educational visits to Australia have grown as strongly as tourism highlights the deeper relationship and interaction between our two countries.
Recognising the fact that mainland Chinese investors are often very different in attitude and background to Hong Kong, Singapore and other Asian investors has seen many companies – including JLL – invest significantly in growing and maintaining a healthy and trusted communications dialogue with Chinese investors because past history has highlighted that relying on intermediaries doesn’t always work.
The tourism and hotel industry will always be cyclical, and the past decade has shown that there can be surprises along the way, but the experience over the past three years suggests that while the Chinese hotel investment boom in Australia might not continue to grow at the rate it has in recent years, their future ‘down under’ should be long-term and sustainable.
About the author
Peter Harper is the Senior Vice President – Investment Sales at JLL Hotels & Hospitality Group. He is responsible for the marketing and sales of accommodation real estate transactions across the primary and secondary markets of Australia’s eastern seaboard. He has been involved in a range of transactions from mid-market assets to island resorts and major five star portfolios. You may reach him at [email protected].