Chapter 1 Location \"Location, Location, Location!\" Chapter Objectives On completion of this chapter the reader will understand: The influence that location has on occupancy The relationship between room rate and location The impact of guest willingness to travel and hotel location The relationship between location and staffing issues The impact of the changing environment and a hotel's location The relationship between location and hotel development The impact that location has on supply of goods and services Key Word Definitions Room rate: The amount charged for a room in a hotel. Rack rate: Comes from a manual hotel reservation system (the Witney System) where the amount to be charged for rooms were stored in a rack. Purpose location: The reason or purpose why the guest is staying in the hotel. FIT: a free and independent traveller. Hedonic: Of, relating to, or marked by pleasure Agglomeration: The potential of the system for particle attraction and adhesion (ie cluster). Distance Decay: The willingness of people to travel to an attraction or event. Environmental Scanning: Constantly monitoring all changes and developments external to the hotel. Greenfield site: A piece of usually semirural property that is undeveloped except for agricultural use, especially one considered as a site for expanding urban development, in this case a hotel. Commodification: To turn into or treat as a commodity; make commercial. Chapter Review The location of a hotel is often referred to as the only attribute that cannot be changed, at least in the short term. Where a hotel is situated has significant impacts on the market that is attracted and the profitability of the establishment, for example the willingness of guests to travel, the need of the guest to be near an attraction/event or business meeting, the room rate, staffing and supplies and even the 'life' expectancy of the hotel. Using location to the best advantage is an important issue for hotel management, as is keeping a watchful eye on how the location of the property is changing in order to respond appropriately to those changes. Location also has an impact on the local environment with issues such as traffic congestion, visual impact and resource use and pollution. Hotel management need to be constantly aware of the location of the property, and not simply take it as something they can do nothing about. Planning must include all stakeholders to ensure that location is used to the best advantage. Introduction It is commonly asserted that the three most important attributes that a hotel can offer are location, location and location; a phrase which is freely used by hotel marketers and hotel real estate agents (Bull, 1994). A good location is important to the sustainable management of a hotel. Even excellent marketing cannot overcome the problems inherent in an inferior location (Moutinho and Paton, 1991). The location of the hotel is the only factor of the product that is completely fixed in the short term (Bull, 1994). Location is a complex mixture of attributes, for example where location close to city areas might be seen as an advantage to some, surrounding characteristics such as noise and congestion may be seen as a disadvantage and the hotel's use of natural resources may have impacts on the community as a whole. A contrasting view is shown by the following (Cartmel is a very small village located in the Lake District, approximately 200 miles from London: Simon Rogan, Manager, L'ENCLUME, Cartmel, Cumbria, England This business is located in a very isolated region -, what impact do you think the location has on your business? I am a firm believer it's what you do, it doesn't matter where you are. I think that people will travel eventually and the business will gradually build up. We knew we couldn't rely on the local clientele (without being too rude - the local population don't really understand the type of things we do here. They haven't quite grasped the \"you get what you pay for\" scenario). The location didn't really come into it. The thing that attracted me was basically the building. I was confident with the product that we had; that with the public relations structure we had, we were going to get people coming to us. As location is a fixed attribute, it has to be considered along with many other influencing factors. For example, location directly impacts on room rate, also influencing staffing and service quality, the supply of goods and services, the use of natural resources and pollution. Therefore, the location of a hotel cannot be considered in isolation from other factors, it must be considered on a strategic level with full awareness of the factors that the hotel's location are influenced by and have influence over. This chapter will consider the major issues that management need to take into account in relation to location. The first of these is room rate, as it has arguably the largest direct impact on the hotel's profitability. Although in a later chapter the question of room rate is discussed under the heading of yield management, room rate must also be looked at in relation to location. Location and Room Rate The development of a new hotel is often undertaken in a location that is close to the reason why the guest would be staying in the hotel. As an example, business guests may desire to be located close to meetings and other business necessities. Therefore hotels targeting business trade will be located accordingly. Likewise, this applies to tourists who may wish to be close to a particular scenic or appealing form of attraction. These two examples are not entirely different, in that the urban tourist cities provide the visitor with a variety of historical associations such as buildings and monuments, castles, cathedrals, museums, galleries, orchestras and amusements, while on the other hand, a scenic region away from major commercial areas can provide the business guest the opportunity to hold meetings and conventions in a more relaxed, congenial atmosphere. In the following extract, the Crowne Plaza is located about 20 minutes by taxi from the main downtown area. As is illustrated there are advantages to this location: Peter Pollmeier, General Manager, CROWNE PLAZA, Shenzhen, China How does your location influence occupancy? Our location is right. We are quite a bit out of town and we benefit because of that Downtown hotels have a problem with crime, prostitution and the traffic is a mess. A factor that can have a direct influence on the room rate that a hotel can charge is the distance that it is from what can be considered the \"purpose location\". This is applicable for all guests staying in a hotel and examples can be seen in many places around the world. For example a family wishing to visit Disneyland in Anaheim, California, have a number of choices: do they stay in a hotel close to or at Disneyland and maybe pay a premium or stay further away at an establishment with a lower room rate. The answer to this question can directly influence demand and the amount that a hotel charges (Lockyer, 2005). Research conducted by Arbel and Pizam (1977) endeavoured to determine what distance tourists were prepared to travel to visit attractions. Table 1-1 shows the result of the research carried out among 300 foreign, English speaking tourists who spent at least a one-night stay in Israel in the Tel Aviv metropolitan region. During the collection of the data there was no reference to price made. It was assumed that regular public transport was available at a reasonable cost. Table 1-1 Willingness To Travel from Hotel to Urban Centre Travel Time (Minutes) % Willing to Travel 30+ 14.9% 20 37.1% 10 33.1% 0 14.9% Arbel and Pizam, 1977, p.19 Table 1-1 is an example of what is referred to as a distance decay function which indicates that where there is up to 20 minutes travelling time there is a high willingness (37.1%) to travel from the accommodation in which the tourist is staying to visit attractions, but once this rises to a travel time of 30 minutes or more, the willingness to travel decreases considerably, to 14.9%. For tourists the willingness to travel influences their choice of accommodation. Returning to the example of Disneyland, being further away from Disneyland may well reduce the amount that is charged by an accommodation provider, but this reduction needs to be considered along with the additional travelling time that is required and the cost of such travel. The trend in many parts of the world is the growing availability of leisure time. This is impacting upon the number of holidays people are taking and their travel patterns. Toni Alvarez, Director, HOTEL BEATRIZ PALACE, Malaga, Spain What influence does the changing holiday patterns have on your hotel? People are saying, I have 47 days holiday per year. So we are going to have four holidays a year. Easter - take seven days, summer take three weeks, Christmas take one week plus the national festivals and national days like long week ends. If they go to Majorca, it takes three hrs in a plane then one hour in a bus. When you have one week you don't want to go too far away. So they have a car and are from perhaps Granada, Cordova, Seville, Gibraltar - areas where they have a lot of people working in factories, fairly highly paid. So they choose a hotel that is maybe only two hours away - for a short holiday they want to stay near. An interesting example was identified in research by Guseman (1988) who reported on hotel location and an aging population. As people around the world live longer coupled with the availability of a growing number of medical treatments that can improve the quality of life, there is also a growing need for visits to medical facilities and a growing need for accommodation close to medical facilities (Guseman, 1988). This change in demand can influence the room rate charged by current properties in the vicinity and also act as an indicator for the need of further development of hotels in such locations. Research into the analysis that guests undertake in the selection of room rate that they are willing to pay and purpose location (Lockyer 2005) has revealed additional insight. For example in that research, if the need arises at short notice to visit or to be with someone in hospital, then the location becomes far more important than the amount paid for accommodation, all other things being equal. On the other hand, a person planning well in advance for a vacation or visit for some other event or attraction may place price much higher on the list of requirements. An example of the direct relationship between room rate and location is a complex decision-making process on the part of the prospective guest. An attempt to bring a quantifiable relationship between the room rate and location question is suggested by Bull (1994), where a hedonic price model is provided indicating the various parts of the location and how these influence the pricing strategy of the hotel, see Figure 1.1 Figure 1.1. Hedonic Price Model P sub Mi = P(A sub 1i , A sub 2i ....... A sub ni ) where P sub Mi = the price (room rate) of a standard room in motel i and A sub li to A sub ni are the quantities of attributes A sub 1 to A sub n possessed by motel i. Bull (1994, p12) Although the research by Bull (1994) was limited in its scope it does indicate how the various attributes of a property come together to influence the room rate. This model does not take into consideration factors such as the rating of the property. In many locations worldwide star rating of accommodation is done on a five or six point rating scale, with the higher the number of stars the higher the rating of the property. Although such systems are often very regimented in their approach to the allocation of grades, (for example do the front office staff wear name badges, Yes or No?), there is research evidence that such rating of a property does increase the amount guests are willing to pay. However, such rating systems rarely take into consideration the purpose location. Although some properties may predominantly develop a single-use market such as a business hotel, others may target a number of different markets at the same time. For example in Wellington, New Zealand, the city hotels during the normal business week charge quite different room rates than at the weekend, where the rate charged may be as much as half that charged during the week. The high fixed cost of development of a hotel continues if the rooms are occupied or not. Although at the weekend the hotels in Wellington may not make the return on a particular room that can be made during the week days, and may not cover all costs, this room rate charging decision represents an effort on the part of management to cover all variable costs and to contribute towards fixed costs (Jagels & Coltman, 2004). The Changing Hotel Location Although the hotel location is fixed, the surrounding area may go through a process of change. Consideration of the life expectancy of a hotel can aid in the formulation of alternative strategies for the hotel so that as the location changes there is a clear plan ahead (Plog, 2001). This requires a long term view. A hotel's survival is linked directly to the location in which it is situated. Over time location's popularity with potential guests can change. The positioning of a hotel rests on two main factors: 1) the true qualities of a location and 2) its perception in the eyes of the guest. The following interview describes a situation where a property once having high occupancy has been greatly influenced by the changing surroundings: P S Ramdas, Managing Director, TOURIST HOME (Pvt) LTD, Egmore, Chennai, India How have the changes in the location of the hotel impacted on your business? The city is changing its character; as the city moves to the south the concentration of businesses are moving there also. The train station used to be in the city centre and that is where the original development started (with this hotel located just across the road from the main station). Madras central was where there was a concentration of hotels. At one time the train used to just come here, but now with the development, passengers have the facility of getting off the train before arriving at this central station. There were no hotels at the other places previously but now hotels have been built in the other areas, around the new stations so people can get out depending on where their work and their business is and find accommodation close by. We also used to have buses come in from all over the south of India and they used to start and terminate in this area. Because of congestion within the city they built a huge terminal at the outskirts of the city and they banned buses coming into the city. Five years ago we had an occupancy rate of 90% and today it is 65%. During this time, the average room rate has also decreased. In this example a once thriving hotel with an excellent location giving a good return on the investment has become a property with little return on investment, with little opportunity of being able to be sold for a reasonable amount. If the hotel had been sold at its prime, perhaps five years ago, it would have received an excellent return on investment, but due to the change in location, its value is now greatly diminished. P S Ramdas, Managing Director, TOURIST HOME (Pvt) LTD, Egmore, Chennai, India What about if you were to sell the property? The occupancy has declined so much it is better to keep it. Because of the deterioration of the local surrounds because of the movement south of the city, I have been trying to think what else the building could be used for. But even converted into offices, it is in a poor location. A great deal has been written in relation to destinations having a life cycle. Butler (1980) suggested that a tourist destination goes through a number of stages from 'birth' to 'maturity' and finally to 'old age' and 'decline'. As has been demonstrated in a number of research projects, the model as proposed by Butler (1980) is not applicable to all destinations and, in fact, can be misleading in the case of many destinations, eg the Pacific islands (Dexter, 1992). What is of importance is the realisation that destinations do go through some form of life cycle and that the hotel accommodation is directly linked to the destination in many ways. The decline or the development of a destination impacts upon the success of the hotel. A changing location does not continually have negative effects on a property. For example, much of Tsim Sha Shui in Hong Kong is built on reclaimed land on the Kowloon side of Hong Kong harbour. The Shangri-La, Kowloon was built there in the early 1980s. At that time it was considered to be a luxury location, but by 2004 the area had deteriorated significantly. Belinda Goh, Director Sales & Marketing, SHANGRI-LA KOWLOON, Hong Kong Has the hotel's location changed much over the years? Tsim Sha Shui peaked in the 80s, then from middle of 90s we were a little overshadowed by Hong Kong side where a lot of hotels were built with convention centres and displays. Hong Kong island has been enjoying good feng shui for the last decade or so. Everything that goes up will come down so Tsim Sha Shui will enjoy the glory very soon. There have been a lot of road works in this area for some time. That is why a lot of shops moved out because the walking traffic was less than before, apart from the hotels, restaurants, discos and nightclubs. Now with the Kowloon Canton railway (underground) extension, people can take the train to go to the border of China easily. The actual station is just at the doorstep of this hotel. We feel this is very positive for this hotel. The above interview demonstrates one example of how location can change. Since the new underground is located as an extension to the major connecting point to China through Hong Hum station, the hotel's purpose location is now different. Further to that, since the return of Hong Kong to China in July 1997 there has been a growing demand for accommodation by Chinese business people. The interview continued: Patsy Chan, Director Communications, SHANGRI-LA KOWLOON, Hong Kong In what other ways have the changes in China affected your hotel? There has been a relaxation of government controls in Quanxho. China is opening her doors in and out - that advantages Hong Kong. China has become quite an influential market for Hong Kong in general especially for retail and the tourist. Of course we are seeing the potential in the China market and it has grown for this hotel from single digits to slightly over 10%, standing about 12% at the moment - the market from China has potential for growth. As has been indicated, environmental scanning needs to be a constant process. A changing environment has serious implications for the management of a hotel. Toni Alvarez, Director, HOTEL BEATRIZ PALACE, Fuengirola, Spain What external factors have affected your hotel occupancy? An example is that we do not have our own golf course like many hotels in the region. We are surrounded by 25 golf courses and that attracts a lot of British guests, the number of golf courses is a very good draw. But an interesting problem about local golf courses is that they have increased green fees so high that it adds too much to the cost and has therefore reduced attractiveness for the British market. As a result they now play golf in England, or France. Changes beyond the control of the hotel, such as illustrated in the increase of green fees, directly impact upon occupancy. Changes in traffic flows, movement of business head offices, changes to flight schedules, introduction of new transport systems and schedules may not be significant in themselves individually but an accumulation of a variety factors can have a significant impact. Location and New Property Development Developing a new hotel and deciding on the number of rooms it should have, as suggested by Culligan (1990, p 32) is a function of three factors. These are: 1). the existing base of competitive hotels; 2). additions to the competitive hotel supply; and 3). deletions or effective removal of rooms from the competitive supply. Investing in the construction of a hotel property has a large number of risks. As reported by Brian (2003, p. 23) these include location, property type, asset performance and sponsorship. Often international hotel chains gain access to hotel markets through the development of greenfield sites, acquisition of existing hotels, acquiring stakes in new hotels and existing hotels, management contracting and franchising; all of which are capital investment decisions (Tse and West, 1992; Collier and Gregory, 1995). These decisions are taken and implemented within a social organisational context by decision-makers who have different perceptions and interpretations of what is necessary and the importance of location (Northcott, 1992). Development directors are key decision-makers; they contribute to the expansion of international hotel groups through developing and implementing the development strategy within a designated geographic location. As such the introduction of a hotel brand into a location can change that location by bringing new business through brand recognition, as well as impacting on current properties both positively and negatively. For example regarding urban tourism, it is suggested that the primary factor in its development is the accommodation (Arbel & Pizam, 1977). Without the hotel facility for the tourist to stay in, even the most richly attractive city could not become a major tourist destination. Experience indicates that often insignificant research is carried out into the demand of additional accommodation rooms in an area before investors make a decision to develop a new property. Probably the best example is that of Singapore in the early 1980s, although this example is dated, similar experiences have occurred in varying degrees around the world. In the early 1980's Singapore was an emerging tourism destination (Astbury, 1985; Smith, 1986; Astbury, 1986). A number of hotel developers saw it as a place where there would be further growth in tourism and therefore a suitable place for investment in the development of additional hotel room stock. The unfortunate thing was that the various developers did not consult between themselves as to what impact the addition of more hotel rooms within the market may have. Over a short period of time a very large number of hotel rooms were added to the market; the over supply resulted in very low room rates and because of this, hotels being converted into hospitals, offices and other uses. A similar problem has occurred in Spain: Rafael de la Fuente, Director Gerente, ESCUELA DE HOSTELERIA, Malaga, Spain What impact has there been from hotel development in Spain? So many new hotels have been opened in the last two or three years that the market has been literally flooded and this means that hotels are having to work harder to keep the same number of customers. Overall guests are paying less because the hotelier is trying not to lose their business. So it is not an easy situation. The impact of new development is evident and follows a very predictable pattern. A new property entering the market has a number of different outcomes: Some guests staying at other properties move to the new property. To attract guests to the new hotel, initially the rates are set very competitively. Other properties respond by reducing their rate. New guests are attracted to the area. Room rates gradually increase. Introducing additional new capacity into a market almost always results in a decline in overall room rates; the basic reason for this is that hotel management are not simply going to sit back and let competitors take their guests without any response. Alternatively a much better approach could be to use the introduction to develop new market niches and expand the market overall (Hsu and Powers, 2002). It is suggested that there should be more emphasis placed on controlling supply growth, and more effort placed on the development of ways to encourage travel and growth in hotel market (Higley, 2003). Location and Social Impact Often the locations where developers wish to build hotels are as close as possible to the attraction that encourages the guest in the first place. These developments cannot be considered in isolation. Where a destination can be considered attractive to tourists and therefore a likely site for hotel development, the building of the hotel can change that environment. Rafael de la Fuente, Director Gerente, ESCUELA DE HOSTELERIA, Malaga, Spain What impact has the hotel development had on the landscape and environment? This is a very complicated situation. Perhaps it is too late to have discovered that the landscape projection codes have been enforced in a very lenient way. In some cases they didn't even exist. So the authorities are beginning to realise now there is a major problem on their hands. The rate the building is going on the landscape will undoubtedly suffer in the future if it is not suffering already. Also there is another problem with lack of water resources. This is a very dry area and we are having an exceptionally dry year. There are many apartments owned by people in the UK and Europe as holiday homes. If all the people who own an apartment decide to come at the same time there wouldn't be enough water for the hotels. The authorities are beginning to realise it is a much better idea to develop your infrastructure before the hotels arrive. Hotels are heavy users of resources and heavy polluters. The impacts caused by the development of a hotel have been demonstrated in many research projects. A similar example was a hotel built in an attractive coastal region where the hotel guests used large quantities of water in comparison to the local residents. The water table changed, which allowed sea water to enter the water supply, causing it to become salty, thereby affecting the water supply for the whole community. There is now a growing interest in green hotels to reduce the impact which hotels have on society and the environment, although much of the push is simply an attempt to reduce costs (Cukier, 2002; Conner, 2000; Chan & Lam, 2001; Jim, 2000). Location and Employment Opportunities Hotels employ a lot of people - in many places internationally there are two or more employees for every guest in the hotel. The locating of a hotel in a particular destination can provide potential employment opportunities which can be positive. On the other hand it could also be detrimental to the location because of such issues as prostitution, crime, relocation of the population, overcrowding of employees' living areas, etc. Examples of the 'pull' that hotels have on a population can be seen in many parts of the world, for example in Hawaii, where once much of the food was locally grown on farms with a thriving farming community. Today however, many of these people have moved to the main tourist areas in Honolulu, leaving their traditional lifestyles behind, attracted by what was perceived as a good financial return. Abid Butt, Managing Director, TURTLE BAY RESORT, Hawaii, USA You are located quite a long way from the populated areas of the island - how does that impact on staff availability? That is a huge issue for us at Turtle bay, being so far away from the city where the majority of the population is. We have a very limited labour pool. When this hotel opened 30 years ago the majority of the staff came from the sugar cane fields because there were sugar refineries and mills and they were shutting down because that industry was going out of business. A lot of that crew was retrained and started working in this hotel. Some of the staff have been with us for years, but it is very hard to find new people in this part of the island. This has resulted what is often described as a once proud warrior race carrying bags for tourists. In addition the development of high-rise hotels in city areas has brought about its own problems both for the local population and the tourist, such as greater traffic congestion and increased pollution. In many instances the burden for improving and dealing with these issues falls on the local tax paying community. Alternatively, hotel development in specific areas can also result in labour shortages, which could push up costs and the availability of appropriately skilled staff. Simon Rogan, Manager, L'ENCLUME, Cartmel, Cumbria, England This village is small and somewhat isolated - what impact does this have upon staffing? Property prices up here are just ridiculous, also rental accommodation doesn't come up very often and if it does, it is very expensive. The living accommodation problem is difficult for us. We have managed to procure a house recently where we have four staff living there. However, as we are getting busier we need to bring more people in but we have nowhere to put them. The other option is to pay them more money and say you have to find something yourself. When we bring staff in, they must have somewhere to live - they want a whole package and this difficult to do. For further reading, turn to the chapter on Human Resources where there are examples of how hotels in Shenzhen, China and Dallas, Texas are dealing with these issues. Summary This chapter has discussed a number of major issues involved in the location of a hotel property. Although a management team may feel that there is little they can do about the location of their property, they do need to bear in mind how the location impacts on issues such as room rate, the community and attractiveness of the property and how these are perceived by the guest. A continual environmental scanning approach should always be operating to take into account the changes that are taking place in the location and how those changes are impacting upon the hotel. The location selected for the building of a hotel not only has internal impacts, it also affects its surrounding neighbourhood and because of this, hotel management in many areas have become directly involved in community affairs, such as voluntary groups, local political groups and other community based organisations, thus ensuring the community identity of the establishment, allowing it a 'voice' in local affairs and making certain the hotel has a friendly community 'face'. Discussion of the issues As the manager of a hotel just about to open in a location with many competitors, how could you operate without negatively influencing the market's local room rate? What are some of the negative issues that the location selected for a new hotel can have on a community? What issues do you see as the most important when selecting a location for a new hotel development? What issues would you consider when undertaking environmental scanning? As a manager of a hotel in your local area, what community groups would you be involved with? Think about two or three different locations for a hotel and analyse how the local staff can help you understand the issues faced by them? Is there an opportunity for hotel managers of different hotels in the same location (ie competitors) to cooperate together on some issues? If so, what should these be? You have been appointed as a manager of a first class hotel located in an isolated area - what management decisions do you make? Case Studies: Case 1.1: Turtle Bay Resort, Hawaii The Turtle Bay Resort is located on the windward side of the island of Oahu, the most visited by international guests of any of the Hawaiian Islands. The main area where visitors stay is in Waikiki, which is situated just a few miles from the international airport. In comparison the Turtle Bay Resort is almost as far away from the airport and Waikiki as is possible. Since the 1960s Waikiki has developed as a major tourism destination. This has resulted in a large number of hotels being built in a fairly small geographical area. In many respects Waikiki caters now for the mass market. Viewing websites such as http://www.hawaii-hotels.com/ gives an indication of the large number of hotels and the price competition among those hotels. This competition has resulted in high levels of discounting and a commodification of the market. For many years Waikiki has worked under a \"price war\" environment just to keep the rooms full. \"They are not able to raise the rates because the people do not appreciate any price increase, and as a result the rate slides in a very small range, which is less that Maui or Hawaii could charge. Waikiki is now like anywhere USA - it does not give you a feeling of a resort\" (Abid Butt, Managing Director, Turtle Bay Resort). The Turtle Bay Resort is quite different from that. Although there is a problem with it being a long distance from the Airport and Waikiki, its location also gives it significant advantages. It is clearly in a different market, and therefore does not have to compete on price. The location also allows for golf courses and other outdoor facilities in a park resort environment which is not available in Waikiki. Questions: 1. If you were the manager of the Turtle Bay Resort how could you further use the location to your benefit? 2. How could you as a manager benefit from the long travel time from the Airport to the hotel? 3. As manager of the hotel what if any association would you have with the hotels in Waikiki? A Case Study of Hotel Locations in the Chinese Cities David Egan , Wei Chen & Yachan Zhang* Centre for International Hospitality Management Sheffield Hallam University * Shenzhen Huaqiao City Group Ltd., China Abstract This paper reports on empirical research in three Chinese cities to test the Egan & Nield (2002) model of hotel location. The authors conclude that the Egan & Nield model is applicable to Chinese cities and that a hierarchy of hotels related to spatial location is observable. However, the complexity of Chinese cities and the current rapid expansion which is changing the spatial structure of the planned Chinese cities mean that, whilst the model can predict the general spatial pattern of hotel location, refinement is required in order to take account of agglomerative tendencies identified in the location of hotels in Chinese Cities. Introduction This paper presents some initial analysis of a study of hotel location in three Chinese cities. The work is part of a larger study which aims to develop an optimising model to help identify how important location is in the success of new and existing hotels. In this paper the authors report the successful application of an urban location model initially developed in the United Kingdom. The successful predictions of the model in both the UK and Chinese markets suggest that the model is identifying common principles underlying the location choice of hotels. The question of location is fundamental to the success of a hotel. Ellsworth Sattler, founder of the Sattler hotel chain and one of the pioneers of marketing in the hospitality industry, once said there were three factors necessary for the success of a hotel: these were location, location, and location (cited in Hsu & Powers 2002). It can be argued that the hotel location is part of the product and service of the hotel itself for it not only involves the convenience issue but also shapes the segmentation of the market. There is a very limited literature on hotel location Bull (1994), Pearce (1995), Ashworth & de Haan (1985) Roubi & Litteljohn (2004) as regards the booming hotel sector in Chinese cities nothing significant appears to have been written regarding the location of Chinese hotels. The Chinese hotel industry provides an interesting case for the study of hotel location as the current boom in hotel developments in certain Chinese cities creates the opportunity to test the hotel location model developed by the authors. A different approach to understanding hotel location has been developed by Roubi & Littlejohn (2004) who suggest that perhaps the often quoted notion of "location, location and location" for hotel success could be expanded into: location (prosperity of the area); location (general access to tourism business/commerce and travel infrastructure) and location (immediate proximity to facilities and positioning in the local environment). It has also been suggested that accessibility and transportation systems are increasingly important for urban development and hotel location by Kevin and Lam (2001), who note that it is generally recognized that the preferred choices for hotel location are close to the airport, train station, bus interchange and highway interchange. This approach can be linked to some earlier work by Chuck (1994) cited in Roubi & Litteljohn (2004) on the impact of zoning, which can create agglomeration economies in specific districts of a city. Zoning can bring clusters of target customers to hotels and create new location choices for the hotel business. Although there are some differences in these approaches, the reality is that the underlying principles are the same, the difference is largely in terms of the detail reflecting the starting point of the authors, the Roubi & Litteljohn (2004) work coming from a hospitality perspective whereas the Egan & Nield's work (2001) comes from an urban location theory perspective. The Egan & Nield model has been applied to other hospitality settings with some success (Egan, D., Knowles, T & Bey, J, 2000 & Egan D & Ball S, 2004). By combining the two approaches it is possible that a better understanding of the optimum location requirements of hotels may be identifiable. The long-term aim of this research is to develop an optimising model to predict the ideal location for different types of hotels. This particular study is a case study to test the general applicability of the model that is being developed by applying it to the dynamic market of urban China. The Hotel Location Model In our model of intra-urban hotel location we adopt the traditional neo-classical economic perspective which emphasises the role of accessibility and rent in determining land use via a process of competitive bidding. The model is based on the partial-equilibrium bid-rent approach, developed by various economists in the late 1960s. The bid-rent model represents a development of the von Thnen (1826) model of agricultural land use, which was applied in an urban context by Isard (1956). This was further developed by Alonso (1964) into the concept of the bid-rent function, the approach to be employed to explain hotel location. It is important to note that Alonso's approach is concerned with partial equilibrium. By contrast the New Urban Economics, developed in the 1970s, is based on a general equilibrium approach (Richardson 1977). It is our contention, however, that a partial approach, with all its limitations, can still be a useful tool for analysing the behaviour of activities such as hotels, which exhibit a spatial hierarchy of land use. Alonso, in his original formulation for the slope of the bid-rent curve, presented the following equation: dp/dt = (Vt - C v Vt -Ct ) /q. where dp is a change in the bid rent with respect to a change in distance; dt is the change in location; Vt is marginal revenue lost from moving an additional unit of distance t away from the centre; CvVt is marginal operating costs arising from the change in volume of business V t (indirect effect of movement on operating costs); C t is marginal increases in operating costs arising directly from a change in t and q is the quantity of land. Thus the change in bid price is equal to the change in volume of business minus the volume of business minus the change in operating costs. Alonso makes the assumptions that the volume of business will decrease with increasing distance from the city centre, so that V t is negative; secondly, operating costs will rise so that the change will be positive, but preceded by a minus sign, and thirdly the quantity of land must be positive, the slope of the bid rent curve must be negative. Alonso (1964 ,p.55) notes that the slope will be such that the savings in land costs are just equal to the business lost plus the increase in operating costs. Thus the family of bid rent curves is very like an indifference map - the curves, being single-valued, do not cross and slope to the right. In the model the change in bid-rent is equal to the change in revenue minus the change in nonland costs, divided by the size of the site. Equilibrium is achieved by maximising profits, the lowest attainable bid-rent indicating the highest level profits, because land costs are minimised. In effect, hotels are trading off the benefit of a location against the costs, the presumption being that a hotel is looking for an optimal location i.e. a location which maximises profits. The obvious question from the viewpoint of a non-urban economist is why one would expect a spatial hierarchy of hotels within urban areas. To understand the process we feel it is important to go back to the foundations of urban economics and in particular the nature of the urban land market. The history of urban development in China is different from the Western world where the Alonso model was developed, therefore a discussion and review of the underlying principles and there potential applicability, and hence the suitability of the model to analyse the Chinese Hotel market. A useful starting point is to consider what is often referred to as the particular nature of urban land. Kivell (1993) notes that land is unlike most other commodities involved in the production process because it \"possesses a number of unusual and complex characteristics\". He suggests the following as being of particular importance: fixed supply in the sense that physical quantity of land is fixed; no cost of supply (land is often referred to as a free gift of nature); unique/irreplaceable; immobile; permanence. Most models of urban land use tend to assume that demand factors are more important than supply, for the reasons stated above, the usual assumption being that supply is inelastic and therefore it is demand that sets the price and therefore urban land use reflects the demand for a particular plot. In a market economy it is usually assumed that land is allocated to the highest and best via the price mechanism. Harvey (1987) suggests that theories involving market based models of urban land use have assumptions, such as resources are allocated on the basis of prices, costs and profits; firms and households will have locational preferences which are reflected in land prices and rents; owners sell and rent to the highest bidder; and there is no government interference. Harvey (1987) also notes that, from the viewpoint of the individual firm, a number of general factors can be identified. The first factor is general accessibility to the centre or CBD. This is traditionally viewed as the most accessible point and the focus for transport, labour and retail markets, but with changes in transport systems this could be regarded as somewhat heroic assumption. However, while there are serious doubts in many cities whether the CBD can be regarded as the most accessible point for transport, labour and retail markets, we would suggest that, from the viewpoint of some parts of the hotel market, this would still appear to be the case. The second factor is special accessibility - usually associated with agglomeration economies, complementarity of businesses can be of particular relevance, and there are additional factors such as historical, topographical and other special site characteristics. Thus the demand for a site reflects an inseparable package of attributes, such as location, infrastructure, complementary activities and transport; however this view only reflects the socalled user demand, those who actually wish to use the land. There is another group, investors, who hope to enjoy either flow of income from the users of the land or/and an increase in value from increases in demand in the future. It is the combination of these two groups which forms the actual market demand for urban land. Through the market land will be allocated to the highest bidder. Thus the value of the land reflects the competitive bidding. Hotels are thus in competition with other users for land - the more desirable a location the higher the potential value. From the viewpoint of an individual hotel the bidding will reflect their expected revenues and costs discounted to net present value which will in turn be reflected in their maximum bids. The behaviour of a hotel may well vary. If it is viewed purely as a user, ie it is renting the site, that only user value is of concern; however if a hotel is also the owner of the site, an additional factor is the possibility of capital growth in the future. This factor may be of greater importance in more speculative development such as urban regeneration where the future market may be much greater than the current position. Although the above principles will apply to Chinese cities, particularly in the current market led economy, it is useful to describe the urban development of Chinese cities. It is important to appreciate that in Chinese cities the role of government in the past has been significant in the location of hotels; in all economies the state has a major influence on land use. However market forces also have a major influence, particularly in the changing Chinese economy, the empirical research reported here is a review of the situation in 2004, thus the picture presented reflects historical land use decisions and more recent market-led changes. Urban development and land use in Chinese cities Land-use reform in China In China, from the 1960s to 1970s, the economy was a planned economy; there was a planned allocation of resources, so marketsfor factors of production did not exist. Factors of production, including land, raw materials and machinery, were allocated by government. It has left many historical problems to the later development. Urban land use reform began in 1979 when the Chinese law on 'Co-operative Ventures' allowed indigenous enterprises to use their land as capital to co-operate with foreign investors (Ling & Isaac 1994). Even with more recent land reform in China the land use and land market is unusual in that it is still affected by the historical factors to a large degree. Chen & Wills (1999) argue that one of the most efficient ways of allocating land to different users is to allow bid rent allocation to take place. When the activities are able to locate at the desired site, their economic efficiency can improve, as well as income earning capacity. In this way rent depends on the actual demand and supply for different uses. When land occupation does not involve a monetary cost, the result is that competition for land use depends mainly on the priority given by the State administration to various enterprises (China). The special phenomena can explain why the number of high-end hotels is so large, but their room-rate is not economically viable in China. One of the reasons is that the land use did not take account of the investment cost in most of state-owned hotels. Another historical factor that had a major influence on the development of Chinese Cities before economic reform, was the emphasis on the growth of heavy industries. This policy, has left a huge supply of old factory buildings in the city centre area. Moreover. it has created redevelopment opportunities for hotel developments. Recent research by Zhu (2003) on land development in Shanghai found that quite a number of manufacturing factories occupied central locations in downtown Shanghai. Zhu argued that this is a legacy of the pre-reform era of socialist industrialisation when urban land was a free means of production and industrialists demand overtook that of others in land allocation, it was not unusual to see factories located in the central business district and now to redevelopment of the old central city was hampered by the existing land use. In 1985, 56.7% of all factories in Shanghai municipality were in its central city, where it was estimated that 30% of the land area was occupied by factories and warehouses (Fung et al 1992). This arguably inappropriate factory location in Chinese city has provided a special opportunity to the hotel business, especially the budget hotel. In fact, the opportunity lies behind the current boom in downtown budget hotels by hotel investors in China, such as the most famous domestic budget hotel chain: Jinjiang Star. One of the location strategies of Jinjiang Star is to demolish old factory buildings and rebuild budget hotel on the sites. Furthermore, redeveloping the old factory building is an efficient option for investors. If the land was previously allocated by the state, developers just need to pay enough money for demolition and rehabilitation and a nominal premium to get the land, so the prospective users can make a huge profit (Ling & Isaac 1994). This phenomena lies behind the opinion of many in the Chinese hotel industry that the domestic hotel company has advantages over the international hotel company to develop the budget hotel business because of these land supply issues. Structure change of land use in Metropolitan in China We suggest that the Chinese metropolitan evolution theory of Song (2003) is a good explanation of observed pattern of hotel location as described later in this paper. Song (2003) argued there have three phases of the structure change of land use in metropolitans in China. The first phase is the 'industrialisation suburban' where the old heavy industries who located in the city centre moved out to the suburban area as they were under the pressure of transport, environment, and land price factors. The second phase is the 'resident and service industry suburban' that indicated there was formed the multifunctional communities around the urban fringe area. The third phase is the 'urban extending' that indicated the 'secondary industrialisation suburban'. The cities of Beijing or Shanghai were showed the same pattern of the structure change of land use during the urban development. The hotel location pattern also changed along with it. In terms of the key trends the pattern, as described by Song (2003), is not dissimilar to the pattern of change to be found in European and American cities (Kivell 1993). If we now consider the land use and hotel location of the 3 case study cities. The city of Beijing The structure of land use changed in the city of Beijing during three phases. The first phase formed the 'urban-rural dichotomy pattern'. From the 1950s the Beijing government focused on the heavy industry development that underlay the population boom and the city centre conglomeration. During the first development phase the core of the old city was formed, comprising four districts: Dongcheng, Xicheng, Congwen and Xuanwu. The second phase formed the 'urban-rural ternary pattern'. From the 1980s, with economic reform, began the urban and rural cross-pervasion, especially after the land reform that regulated the competition of land use which resulted in heavy industry moving out of the city centre to the suburban area. At the same time, the high-value service industries (finance, insurance, offices, media et al.) continuously congregated in the city centre where was formed the Guomao CBD, Yansha CBD, and two financial streets in Beijing. During this phase, the high-end hotels congregated in the CBD area or other centre area. At the same time, the lower quality hotels also positioned themselves in vantage points around the centre area. During the 'resident suburban' period, there appeared huge growth of the resident area around the fringe of city that continuously occupied the industry land. Hence, the heavy industry moved further out of the suburban area to the Economy and Technology Development Zone, creating new supply opportunities to hotel investors. The third phase formed the 'urban-rural integration pattern'. Suburban and rural areas became more and more integrative, along with the further development of Zhongguancun High Technology Park, the Olympic Park, the Capital airport, underground, trolley, highway network and so on, the changing structure of land use causing changes to the hotel location pattern in the city. For example, several quality hotels located at the edge of the city, the common characteristic being their location near the main road, thus providing easy access for guests to both the city centre and airport (usually 10-15 minutes driving). The city of Shanghai The structure of land use change in the city of Shanghai is similar to that of Beijing. From the 1990s Shanghai set out proposals to become an international metropolitan city. The new urban plan required the structure of land use in Shanghai to adapt to reflect its development as an international economic centre, international financial centre, international trade centre, international ship centre and so on. Hence, the heavy industry was forced to move out of the city centre, to be replaced by the finance, stock, trade and management industries. However, the second phase in land use change in Shanghai is different to that of Beijing. For reasons of geography Beijing has developed not via the 'circle pattern' to extend its urban land, but rather the 'agglomeration pattern' to extend the urban area. Most notable being the Pudong New Area resulting in the creation of the Lujiazui Financial Centre, Jinqiao Export Processing Zone, Waigaoqiao Tariff Free Zone, Zhangjiang High Technology Park in Pudong district. Now the CBD of Shanghai includes the Bund area, North Bund area, and Xiao Lujiazui area (total 5sq. km.) where majority of banks, international group headquarters and other high-class service industries are located. The CCD (Centre Commercial District) includes the area north from the Changshou road and south to the Fuxing road; west from the Wulumuqi road and east to the whole Da Lujiazui area (total 30sq. km.), where the density of buildings is very high and the opportunities for redevelopment is significant. Interestingly, from our research we discovered that most of hotels built in the last 5 years are concentrated in the New Pudong area and the old city centre. One reason could be the supply factors, where the old city centre provided many redevelopment opportunities suited to hotel developments. City of Shenzhen Separated only by a river from Hong Kong, Shenzhen used to be a small frontier town with a population of less than 30,000. The Central Government established the Shenzhen Special Economic Zone (SSEZ) in 1980 as one of the four testing grounds for the importation of foreign capital and integration with the world economy. With rapid growth and modernization during the past two decades, Shenzhen grew to a population of 7 million--a city of immigrants. The region, which covers about 2000 square kilometers, has changed from a farming region to a highly urbanized area with a built-up area of 470 square kilometers. Shenzhen's current output per capita is among the highest in China. The SSEZ, with a total area of 327.5 square kilometers, was built on a green-field site with a few small towns, the most important of which was Luohu and the main customs checkpoint on the border between the mainland of China and Hong Kong. At the very early stage of development, the general target was "to develop Shenzhen into an industry-led modernized Special Economic Zones, based on the integration of agricultural and industrial development" (Gu, 1998). Urban development was mainly in industrial zones. According to the first Comprehensive Plan, made in 1982, Shenzhen would be developed into a linear city stretching along the border between Shenzhen and Hong Kong. In the "Shenzhen Comprehensive Plan (1996-2010)", the planned area was extended beyond the SSEZ to cover the entire metropolitan region. It aimed to build Shenzhen into a major city that offered finance, commerce, trade, information technology, transportation services and high technology. Shenzhen was expected to be a prosperous and well-managed city that was attractive to tourists and a comfortable place to live (Wang et al., 2000). During this phase, using Hong Kong as a reference, Shenzhen began to draft the Urban Planning Ordinances from 1995, in which a new planning system was brought forward. The Regulatory Planning & Ordinance was then regarded as the key and connection between urban planning theory and its practice (Xue and Zhou, 1999). The Ordinance took effect in 1998 and led urban planning in Shenzhen. A new Urban Planning Board was also established according to the Ordinance. In 1999, the first 11 "regulatory plans and ordinances" were put into effect in accordance with the statutory procedure. Tourism impact on urban development in China China is currently one of the most dynamic tourist economies in the world and its tourism facilities and services are rapidly improving. Tourism is now viewed as a means of attracting foreign exchange, providing employment, promoting regional development and stimulating economic growth. The tourism industry is now regarded as one of the main stimuli of urban development in China. Tourism policy and urban development Chinese tourism policies have established a legal framework for the administration, management and operation of tourism enterprises. This framework has covered almost all aspects of the tourism industry (Zhang, King & Jenkins 2002). The China National Tourism Administration, functioning under the State Council, is the administrative organ of the nation's tourism trade. One of its functions is to formulate policies and establish systems for developing tourism. It has branches in all provinces, autonomous regions and municipalities. The most significant benefit brought to the urban evolution by tourism policy is the development of infrastructure . About 25 years ago, the third generation Chairman and the chief designer of Chinese reform and opening Deng Xiaoping said: the government should pay a great attention to both tourism and urban development; developing tourism should consider the city's infrastructures improving at the same time (CNTA 2000a). Under the golden rule of Xiao-ping Deng, Chinese government in each province has invested a large sum of capital on infrastructure building in order to attract more foreign and domestic travellers, especially in the coastal cities, as these have more 'higher quality travellers' than inland cities. In 2000, the Chinese government launched the tourism infrastructure building into 'national debt planning', 1.3 billion RMB was invested in infrastructure building, the main focus being on tourism transport, water and electricity provision, car parking, public toilets, sewerage and garbage disposal (CNTA 2000b). In 2001 the Shanghai government pointed out that in order to develop and optimize urban tourism resources in the city of Shanghai, all tourism transport should be greatly improved. All airport, railway, highway, and water carriage transport should be based on the principle of bringing convenience to tourists. The tourism planning of new Shanghai focuses on improving urban sightseeing, business conferences, shopping and other far-suburb nature tourism (Shanghai Guildhall 2001). The Guangdong government made out a new tourism policy in 2002: in order to keep in step with the reform and development of the tourism industry, the government should support the building of infrastructure, transport, the special tourism line, car parking, bus stops, and the green-belt around the landscape and hotels (Guangdong Guildhall 2002). All these positive tourism policies in China not only created a pleasant tourism environment but also stimulated the evolution of urban areas throughout the country. At the same time, we can see the hotel location pattern changed with this urban evolution in China. In our model of intraurban hotel location, we adopt the traditional neo-classical economic perspective which emphasises the role of accessibility and rent in determining land use via a process of competitive bidding. The model is based on the partial-equilibrium bid-rent approach, developed by various economists in the late 1960s. The bid-rent model represents a development of the von Thunen (1826) model of agricultural land use, which was applied in an urban context by Isard (1956). This was further developed by Alonso (1964) into the concept of the bid-rent function, the approach here employed to explain hotel location. It is important to note that Alonso's approach is concerned with partial equilibrium. By contrast, the `New Urban Economics', developed in the 1970s, is based on a general equilibrium approach (Richardson, 1977). It is our contention, however, that a partial approach, with all its limitations, can still be a useful tool for analysing the behaviour of activities such as hotels, which exhibit a spatial hierarchy of land use. In the Alonso model, the problem is conceived in terms of the location decision of the individual household or firm which is facing a given rent-distance function. Such a rent gradient is exogenous to the model, a major shortcoming in the explanation of urban form. However, from the viewpoint of a particular firm (i.e. a hotel) this reflects the context of the decision-making process. The Alonso model is based on the assumption of a monocentric city, which lies on a featureless plain, and from which transport is possible in every direction. All urban employment exists at the city centre and all foodstuffs and services are only available at that location, the land market being competitive and free from institutional constraints and other distortions. These assumptions allow residential location, the main concern of the Alonso model, to be analysed in one-dimensional space in terms of the cost of commuting from residence to the city centre. The bid-rent concept is, however, applicable to non-residential establishments such as hotels. Alonso (1964, p.51), in his original formulation for the slope of the bid-rent curve, presented the following equation: dp/dt = (Vt - CvVt - Ct)/q where, dp/dt is a change in the bid rent p with respect to a change in distance t; V t is marginal revenue lost from moving an additional distance dt away from the centre; C VVt is marginal operating costs arising from the change in volume of business V t (the indirect effect of movement on operating costs); Ct is the marginal increase in operating costs arising directly from movement dt; and q is the quantity of land. Alonso makes the following assumptions: that the volume of business will decrease with increasing distance from the city centre, so that Vt is negative; and that operating costs will rise, so that the change will be positive, but preceded by a minus sign; that the quantity of land must be positive. Thus the slope of the bid-rent curve must be negative. Alonso (1964, p.55) notes that the slope will be such that the savings in land costs are just equal to the business lost plus the increase in operating costs. Thus the family of bid-rent curves is very like an indifference map, the curves being single-valued, non-intersecting, and downward-sloping to the right. This model can be used to explain hotel location, although the significance of the individual components is rather different from that perceived by Alonso. In the case of hotels, the value of the product can be expected to vary with distance from the centre, our proposition being that there is an inverse relationship between revenue and distance from the city centre, whereas Alonso regarded the relationship between costs and distance as particularly significant. In the case of hotels, costs are unlikely to vary with location to any significant extent, so that in our view Ct is unlikely to change significantly with distance from the city centre, while in the case of hotels, Vt, will vary significantly with distance from the city centre. In the model, the change in bid-rent is equal to the change in revenue minus the change in nonland costs, divided by the size of the site. Equilibrium is achieved by maximising profits, the lowest attainable bid-rent indicating the highest-level profits, since land costs are minimised. In effect, hotels are trading off the benefit of a location against the costs, the presumption being that a hotel is looking for an optimal location--i.e. a location which maximises profits. Underlying this analysis are the assumptions that firms benefit from centrality and that revenues fall and costs increase towards the edge of city centre. These assumptions underlie the bid-rent curves and the land-value or rent gradient, shown in Figure 2 as curve SS. This indicates the relationship between land costs and location. In effect, the curve SS indicates the profile of expected land costs facing a business looking to bid for a location. The rent gradient has long been regarded as a serious weakness of the Alonso model. Richardson (1977) notes that the rent gradient is assumed and not, therefore, endogenous to the model. The rent gradient can be made endogenous, however, if the bid-rent