# RECORD 387fe0804339369bfc565f8780311edbb5b8a55f # TITLE: Do Hotels and Mixed-Use Projects Benefit Each Other? Evidence from China # YEAR: 2017.0 VENUE: ICHRIE Research Reports DOI: 10.61701/789881.21 # AUTHORS: Yun Zhang; C. Tang; Yunzi Zhang # PAGES: 17 CANDIDATE TABLE PAGES (1-based): [12] # ABSTRACT: Purpose: In China, many mixed-use projects included a luxury hotel on the property. The present study aims to answer two questions: Do mixed-use projects benefit from including a hotel? Do hotels benefit from being located in a project? Design/Methodology/Approach: The present study collected a sample of 76 mixed-use projects from Sina Commercial Real Estate database (Sydc.sina.com.cn). Hotel performance data are provided by STR. A hedonic model was used to test hotels’ effect on office rents and residential unit prices in mixed-projects. A matched-subjects designed was used to analyze the effect of mixed-use projects on hotel performance. Key Findings: The analysis indicate that mixed-use projects with hotels have higher residence price, but not office rent, compared to projects without a hotel. Hotels located in a mixed-use project have higher RevPAR and ADR than their stand-alone counterparts, but there is no difference in occupancy rate. Implications for Practice: Mixed-use project developers could consider increasing the number of units in the service apartment to take advantage of the residential unit price premium. Hotels located in a mixed-use project could command a premium ADR without losing occupancy to their stand-alone counterparts. They could aim to preserve their price premium and expand the market with service or product instead of discounts. Originality/Value: This study empirically tested the effects of a common practice adopted by Chinese mixed-use developers. The results could help mix-use developers and hotel operators by pointing out the specific channels that deliver the benefits of including a hotel in mixed-use projects. Relevance of the Topic: In China, some local governments may request mixed-use projects to include a luxury hotel as a condition for investment incentives. However, it may not be easy for those hotels to reach breakeven quickly in saturated markets. As a result, some developers may hope to leverage the hotel brand to enhance the value of other components in the project (Rapoza, 2012). The present study tested the economic implications of this phenomenon from the project’s and the hotel’s perspectives. ===== PAGE 1 (score 5, numeric-paren 0, table-words 0, var-words 5) ===== ICHRIE Research Reports ICHRIE Research Reports Volume 2 Issue 1 Article 4 2017 Do Hotels and Mixed-Use Projects Benefit Each Other? Evidence Do Hotels and Mixed-Use Projects Benefit Each Other? Evidence from China from China Yun Zhang Marriott International Chun-Hung (Hugo) Tang Purdue University Yunzi Zhang Northern Marianas College Recommended Citation Recommended Citation Zhang, Yun; Tang, Chun-Hung (Hugo); and Zhang, Yunzi (2017) "Do Hotels and Mixed-Use Projects Benefit Each Other? Evidence from China," ICHRIE Research Reports: Vol. 2: Iss. 1, Article 4. DOI: doi.org/10.61701/789881.21 Available at: https://via.library.depaul.edu/ichrie_rr/vol2/iss1/4 This article is brought to you for free and open access by the International Council on Hotel, Restaurant, and Institutional Education (ICHRIE). It has been accepted for inclusion in ICHRIE Research Reports by an authorized editor of DePaul University School of Hospitality Leadership. For more information, please contact rr@depaul.edu. The compilation of the journal issue is copyrighted by ICHRIE, but authors retain the copyright for their article. ===== PAGE 12 (score 14, numeric-paren 8, table-words 2, var-words 1) ===== The match-subject analysis shows that project hotels have higher ADR and RevPAR, but not occupancy, than their stand-alone counterparts (Table 3). It suggests that even though project hotels’ ADR is higher than their stand-alone counterparts; they can still maintain a similar occupancy rate. This leads to a higher RevPAR in project hotels. It means that the benefit of being in a mixed-use project comes in the form of pricing power, not customer volume. As a follow-up analysis, we also regressed project hotels’ ADR, RevPAR, and occupancy rate on project and hotel characteristics. None of the project or hotel characteristics affects occupancy rate. ADR and RevPAR are positively related to hotel scale and the GDP of the home city. Project hotels in a residence-focused project have higher ADR and RevPAR than in projects of other types of main uses. Table 3 Mixed-use Membership’s Effect on Hotel Performance Variables: Mixed-use project hotels (n = 31) Stand-alone Hotels (n = 31) Paired test ADR ($) 191.91 (20.38) 167.82 (17.27) z = 1.98** RevPAR ($) 133.43 (15.04) 108.25 (10.62) z = 2.99*** Occupancy (%) 69.60 (2.05) 65.31 (2.46) t = 1.60 Note. Standard deviations appear in parentheses below the means. Significant level: * p<0.1, ** p<0.05, *** p<0.01. ADR and RevPAR are not normally distributed based on the Shapiro-Wilk W test so the paired test between mixed-use project hotels and stand-alone hotels are based on the nonparametric Wilcoxon signed rank test. Occupancy is normally distributed so the paired t-test is used. Implications for Practice or Policy The analysis shows that mixed-use projects with a hotel have higher residence prices, but not office rent, than those without a hotel. It suggests that if there is space allocation flexibility in the planning stage, it would be beneficial for projects with a hotel to include residence space given other factors remaining the same. If allocating more residential space is difficult, an alternative may be including service apartments in the hotel component. This 11 Zhang et al.: DO HOTELS AND MIXED-USE PROJECTS BENEFIT EACH OTHER? Published by Digital Commons@DePaul, 2017 ===== PAGE 13 (score 4, numeric-paren 0, table-words 0, var-words 4) ===== approach may be feasible because hotels and service apartments are under the same commercial zoning (B14) in China (Ministry of Housing and Urban-Rural Development of the People's Republic of China, 2012). Papadimitriou and Verykios (2015) showed that branded residences can command an up to 30% price premium compared to equivalent non-branded residences. DiPasquale and Wheaton (1992) and Leung et al. (2008) argued that a productive economy can positively influence real estate value. This line of thought outlined the importance of market-specific factors in real estate value (Malpezzi, Chun, & Green, 1998). For example, big cities have well-developed public transportation system to connect mixed-use projects with local residents and travelers. The sample data of Chinese mixed-projects is consistent with the above theoretical argument in showing both office rent and residence price to be higher in first- tier cities than in other cities. The suggests that in less developed cities, building mixed-use projects alone probably will not bring expected economic benefits without infrastructures in place. Project hotels are able to command a higher ADR without losing occupancy rate when compared to their stand-alone counterparts, thus a higher RevPAR. This could be an indication that project hotels’ demand is relatively inelastic. This suggests that it may not be necessary for project hotels to sacrifice their ADR for gaining market shares. They could aim to preserve the price premium and expand the market share by providing value to customers in service and/or projects instead of through discounts. Future Research With mixed-use projects gradually shifting to second- and third-tier cities, future studies can benefit from including more second- and third-tier cities. Future studies can also examine whether the benefit of including a hotel accrue to the retail component because hotels and retail shops may share similar types of customers. When examining the project hotels, the present study focused only on the room division. Future studies that include food and beverage and convention business may produce a more comprehensive picture of the benefit of being included in a mixed-use project. 12 ICHRIE Research Reports, Vol. 2, Iss. 1 [2017] https://via.library.depaul.edu/ichrie_rr/vol2/iss1/4 DOI: doi.org/10.61701/789881.21