Before the Olympics, a Parade of Companies

THE Olympic torch set off last week from Athens for Beijing. By the time it arrives in August for the start of the Olympic Games, Beijing will have largely completed a transformation from a staid seat of government to a modern metropolis.

An Olympic Boost for Beijing

Even as its economy surged in recent years, Beijing, China’s capital, still lagged behind business centers like Shanghai and Guangzhou in commercial development. Roads and public transit were outmoded, developers said, and companies that wanted to expand there had limited options for office or retail space.

But with the Olympic Games as a catalyst, government authorities undertook a vast makeover of the city. Since its selection in 2001 as the host city, it has poured billion into infrastructure projects and Olympics venues while encouraging the development of glittering office, hotel and retail centers. Entire neighborhoods are being renovated.

In 2007, four new shopping centers added nearly 1.2 million square feet of retail space, office space expanded by more than 14 million square feet, and 2,500 new hotel rooms came onto the market, according to Jones Lang LaSalle, a real estate services and money management company.

And that was just last year. In 2008, an additional 11 shopping centers totaling more than 11 million square feet are scheduled to open, along with 15 million square feet of office space and more than 11,000 hotel rooms, Jones Lang LaSalle said.

With the new supply of high-quality real estate, more American companies have been heading into Beijing, seeking to expand their presence in one of the world’s fastest-growing markets. A less-stringent regulatory environment for business is also helping to clear the path; there are fewer ownership restrictions, for example, for foreign businesses in certain industries. “The city is expanding at such a pace, it’s creating new opportunities every day,” said Edwin Fuller, the president and managing director of international lodging for Marriott International, whose hotel brands include JW Marriott Hotels & Resorts, Ritz-Carlton and Renaissance Hotels.

In the two years leading up to the start of the Games, Marriott International will have opened eight new hotels, totaling 3,000 rooms, including a JW Marriott and Beijing’s second Ritz-Carlton. Both the JW Marriott and the Ritz opened late last year in China Central Place, a new mixed-use development in the Central Business District. Companies already established in China are expanding in Beijing, including McDonald’s, Staples, Starbucks and Nike, while others are entering for the first time, or venturing into more direct investments.

Apple plans to open its first Chinese store in Beijing this summer. The store, with 30,000 square feet of space, will be on Qianmen Street, a historic but neglected commercial district at the south end of Tiananmen Square that is being remade into a pedestrian shopping and dining corridor.

Last August, Nike, which is sponsoring several Olympic teams, opened a flagship store on the busy Wangfujing Street in the city’s center. At 12,000 square feet, the store is the company’s largest in China, and the first in the country that Nike directly owns and operates. The company says sales have been brisk. (There are some 3,500 Nike stores throughout China, though they are owned and operated by franchisees or other partners.)

The Fatburger restaurant chain, owned by the Fog Cutter Capital Group, also plans to open an outlet in Beijing before the Olympics, after the opening last fall of its first Chinese venture in Macao. And Auntie Anne’s Pretzels plans to open three outlets in Beijing in the coming months, in its first foray into China.

“We’re using the Olympics as a catalyst to expose people to our brand,” said Mike McCoy, the director of franchise development and international operations at Auntie Anne’s. He said the company had long considered expanding into China but only recently found the right licensee with whom to form a partnership. “With the Olympics, the timing couldn’t be better,” he said.

Even celebrity chefs are getting in on the action. Daniel Boulud, who owns high-profile restaurants in New York and Las Vegas, plans to have a restaurant in Legation Quarter, a luxury development that will open this spring in the former American Embassy near Tiananmen Square, next to the mausoleum of Mao Zedong.

The appeal, of course, is easy to see: China’s economy has been growing by double-digits annually, and its 1.3 billion or so citizens are becoming more affluent. Yet few Chinese brands compete in the luxury categories. “The consumer market is a blank canvas in China, to a certain degree,” said Benjamin Christensen, the research manager of Jones Lang LaSalle Beijing. It was only in 2001 that the first modern shopping mall opened in Beijing. But the concept has caught on with consumers and retailers alike.

The advent of a global event like the Olympics, expected to draw some two million foreign and domestic visitors, has been a strong springboard.

Still, some people wonder what will happen when the athletes and the spectators go home, and Beijing is left to absorb an enormous increase in hotel rooms, shops and office space, some in unproven neighborhoods. Many Olympic host cities, like Montreal in 1976 and Sydney, Australia, in 2000, experienced economic slumps after the Games as they struggled to recoup their costly investments.

In recent months, some new retail centers have had trouble lining up tenants, according to leasing agents. Similarly, hotel occupancy rates in Beijing are likely to drop, at least temporarily, after the Games, said Andreas Flaig, an executive vice president at Jones Lang LaSalle Hotels in China. But hotels may partially offset that with higher prices, he said, noting that average room rates for luxury hotels in Beijing nearly doubled from 1999 to 2007, to roughly 0.

These hotels “are built for the long term, not for a 16-day event in August,” Mr. Flaig said. “They want to participate in the long-term growth of Beijing.”

Indeed, few companies coming into Beijing seem worried. For one thing, hotels groups like Marriott International tend to operate hotels for local business people who develop the properties, so they are more insulated from real estate costs and risks. Similarly, most retail outlets have a local partner or franchisee, although direct investment has been growing.

MOREOVER, China’s long-term growth prospects and Beijing’s healthy mix of tourists and business travelers bode well for the long term. Past Olympic host cities have largely been in developed countries. Beijing, by contrast, is experiencing breathtaking growth, and the investments made for the Olympics, largely centered on improving transportation and infrastructure, will only help its future growth, according to Michael Thompson, the president of Cushman & Wakefield’s Asia unit.

Mr. Fuller of Marriott agreed. “You’ve watched every city that has ever hosted the Olympics go into oversupply mode,” he said. In Beijing, he said, “I suspect it will be relatively short-lived.”