HOW DOES IT IMPACT ON DEVELOPMENT OF THE HOSPITALITY PROPERTY SECTOR?
Last year was a bumper year for Vietnam’s tourism sector as the country received a record high of 12,922,150 international visitors, up to 29.1% year-on-year. This remarkable achievement making the new trends in hospitality property sector such as the boom of resorts, 5-star hotels and condotels to meet the rapidly rising market demand for tourists. Certainly, hospitality real estate continues to be the property market with the highest potential in 2018. 1
Achievements for Vietnam’s tourism
After stagnating growth in 2014 and 2015, international arrivals growth has surprised even the most hardcore optimists among us. The latest figures from the General Statistics Office show that an estimated 12.9 million international visitors arrived in Vietnam during 2017, up 29.1% against 2016 with 10 million international arrivals. 2
Tuncay Bockin, former general manager of Crowne Plaza West Hanoi Hotel, noted Vietnam even had greater tourism development potential than Thailand, which lures about 20 million international visitors a year. 3
In 2017, tourists from Asia grew 34.4% in total, with tourists from China rising 48.6%, South Korea 56.4%, Japan 7.6%, Taiwan 21.5%, Malaysia 17.9%, Thailand 13%, and Singapore 8%. The number of European tourists reached 1.9 million, up 16.6%, with those from Russia rising 32.3%. Visitors from five Western European markets exempted from visas for 15 days increased significantly: the UK by 11.3%, France 6%, Germany 13.6 %, the Netherlands 11.7%, Spain 20 %, and Italy 13.2%.
Visitors from the Americas stood at 817,000, up 11.1% over 2016, of which visitors from the US reached 614,100, up 11.1% y-o-y. Visitors from Australia reached 420,900, up 14.3%, and Africa 35,900, up 25.6%. 4
As of May 2018, total international arrivals in first 5 months reached 6,708,428 arrivals, increase 27.6% over the same period last year. 5 With these impressive achievements, VNAT (Vietnam National Administration of Tourism) is aiming to turn the tourism sector into a key economic industry by 2020.
Tourism growth drives hospitality property market
The fast-changing hospitality industry which benefits from the rapid increase of travelers in recent years is offering many opportunities for developers to expand the number of rooms and market their properties to future new categories of guests like millennials, according to hospitality experts. 6
In 2017, hotel and resort performance has been strong, especially in Hanoi and Ho Chi Minh City, where occupancy growth has been outstanding, with levels averaging 81% and 73%, respectively. Da Nang and Nha Trang saw large increases in arrivals, which improved y-o-y occupancies and, despite more new openings last year, a slight increase in average room rates. 7
For 2018, most hotels and resorts have had an average occupancy rate of nearly 60%, many hotels are being built, and quite a few projects will be launched in the near future, Do Hong Xoan, chairwoman of the Vietnam Hotel Association said at a conference on hospitality investment held on May 9 in HCM City. 8
Over the past years, the hospitality real estate market has seen a shift in focus, from low and mid-range hotels to luxury ones and resorts. Because the room occupancy at many hotels of 1-2 star ratings are low as tourists prefer hotels of higher quality.
For instance, the Danang Department of Tourism demonstrated that room occupancy averages 25-30% at such hotels, 46% at 3-star hotels, 72% at 4-star facilities and 80% at 5-star properties during the Lunar New Year holiday (Tet) when there was strong demand for accommodation. 9
CBRE stated that in the future, Vietnam’s hotel market will see the 5-star hotel and resort sector getting busy with immense growth as more 5-star hotels are opened in HCM City in 2017. And Hanoi is to welcome about 1,000 hotel rooms from 5-star hotels in the next 2 years. 10
However, the market also recorded a transformation in the structure of product type. Premium hotels and resort products are now being replaced by condotels, with units ranging from VND2 to 3 billion ($88,900 to $133,000). 11
The investor’s attention
A mix of economic factors, a positive outlook for the real estate sector, and more stable market conditions has led to a rise in foreign investor interest in Vietnam’s property market. In particular, investment in the hospitality real estate segment is the trend and results in big benefits for investors in Vietnam.
Foreign investment into the hotel, condotel and resort sector has seen stable growth, with the increasing presence of established international firms. Although many world-renowned international hotel operators continue to target Vietnam, there are also many large-scale projects from big local developers such as VinGroup and SunGroup. These local ones are creating and expanding tourism clusters at coastal cities as Da Nang, Nha Trang, and most recently in Phu Quoc.
HCM City also enjoyed an active scene of hotel transactions and newcomers joining market like Duxton Hotel Saigon, Bay Hotel or Westin Grand Hotel Saigon.
Jeffrey Perlman, managing director and head of Southeast Asia for Warburg Pincus, commented that with tourist arrivals to the region expected to more than triple over the next 10 years, hospitality and tourism will be at the forefront of driving the region’s outsized growth.12
10 Hotel sector to boom in 2017 – VIR – Jan 9, 2017
11 Hospitality takes on new frontiers –VIR – Jan 15, 2018
12 Warburg Pincus sees big potential in hospitality – VIR