A Beautiful Synergy
Issue 44 - August 08

The hotel is generally the largest single occupier of space within most mixed-use developments, but its power to influence the success of the development reaches far beyond its footprint.

From Beijing to Bangalore, available plot sizes, government planning policies and the rising cost of land is challenging traditional hotel development strategies. For developers, the concept of building a bespoke hotel in a prime city location has become alien. The reason for this is quite simple: money. "If you're looking at building a stand-alone hotel in a CBD in a primary location, you will be hard pressed to get the returns that you require to justify your investment," explains Andreas Flaig, Managing Director, Jones Lang LaSalle Hotels China.

Clearly, a hotel cannot hope to offer initial (or even long term) gains comparable to those of a retail, commercial or residential development. This should not, however, be taken to mean that the role of hotels in our cities' prime locations is diminished. "If a hotel is not feasible on its own," Flaig continues, "the question is: can it be feasible in conjunction with other assets, and the answer is yes."

Role of the hotel
A hotel can play several mutually beneficial roles in mixed-use projects. In fact, the "hotel as heart" concept can help drive mixed-use destinations to new levels. "For projects with a large office section, the hotel plays the main supporting role for visiting guests and enhances the overall image of the entire development," says Victor Wang Senior Manager, PKF Consulting Inc. Where developments have a large residential element, the hotel becomes the entertainment centre, and even un-branded residences can have a greatly enhanced capital value through association by proximity alone.

Even for smaller scale developments, having the right hotel brand can be the recipe for success. "Whether small or large, it always comes down to market positioning, location and how it is distinguished from its peers," say Wang. For smaller scale developments, he points out, the hotel will naturally be smaller and may require creative design and sales strategies to realise its full potential. But with the right development and the right location, the opportunities for achieving a successful synergy between hotel and development abound.

A new lifestyle
One example of successful synergy is the concept "urban resort." Drawing on the lifestyle as brand ideal, it is an exploration of how a hotel can really set the tone for an entire development. "Urban resort is a lovely state-ofthe- art term," says Terence Ronson, Managing Director, Pertlink Limited, conjuring images of "an oasis in the middle of a busy city. Who wouldn't want to escape the traffic, pollution and heat of today's busy cites by slipping into a beautiful spa or fabulous restaurant."

The premium facilities, from spas to high class restaurants that a top end hotel brand can offer, will draw the type of guests and clientele that will attract luxury retailers to a retail podium, and enhance the saleability of residences in the development. The hotel can provide an "easy fix", and answer to any questions of how to cement the lifestyle offering and positioning of the destination. The benefits to developers are huge. As Ronson explains: "It really depends on what is included in the development. If a mixed-use offering does not have such facilities, it will have to depend more on its own branding and marketing efforts to attract customers."

Choosing the brand
Matching the hotel brand to the development is becoming increasingly challenging as hotel groups diversify and create new concepts. "New brands are coming along all the time, and you can see an example of this at the "W" located in Elements Hong Kong, and of course it's sister hotel the Ritz Carlton is also there," says Ronson. He believes that many travellers are starting to prefer independent brands, while others are very loyal to tradition prestigious marques such the Mandarin Oriental, Grand Hyatt and Shangri-La.

The relationship between a mixed-use development and its hotel brand thus becomes much like a celebrity marriage, matching the character, tone and status of each party is essential to a harmonious and profitable future. "Every hotel brand has its own unique character. To add value to a mixed-use development, the hotel image (whether by operational concept, design or functionality) has to be in sync with the total image of the development," Wang explains.

Mutual benefit
Anybody remotely in touch with the industry will be aware of the "communication gap" (for lack of a better word) between developers and hotel brands. The developers, who are motivated primarily by the added financial benefits of getting an esteemed name online, suddenly have less flexibility in how they design and construct the space. Often, there are strict quality guidelines that will require additional initial investment. From the hotel group's perspective, their brand is suddenly at the mercy of a third parties funding, with all the risk that entails. However, the risk is far outweighed by benefits (see table below).

A successful synergy results in a number benefit for both partie

Asset Class	Benefits to hotel group of locating within a mixed-use	Benefits to developer of having the right brand hotel in their mixed-use development
Branded Residential	Commission or royalties on sales / brand. Resource use maximization from servicing both hotel and residences.	Increased apartments saleability. Price premium on market value.
Retail	Increased traffic of leisure and F&B customers.	Enhanced attractiveness to the retail tenants that match the developments positioning.
Office / Commercial	Access to corporate accounts (a significant cash cow).	The right hotel brand a definite attraction to top level tenants.

"Mixed-use development is definitely the way forward, for China at least," says Flaig. "There are three reasons for this, firstly land is readily available to support mixeduse plots, secondly stand-alone hotels are becoming unfeasible in many locations, and finally the government is supporting the creation of developments which offer diverse benefits to their environs." While there can often be challenges associated with this paradigm shift, it would seem that the long-term marriage of hotels and mixed-use development will be a fruitful one. As Flaig concludes: "Hotels are a special asset class and it absolutely works." RFP

To add value to a mixed-use development, the hotel image (whether by operational concept, design or functionality) has to be in sync with the total image of the development

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