An “if you build it, they will come” scenario is playing out in Vietnam, where a lively lodging development scene helps draw new visitors at an impressive rate — more than 20% annually in recent years — to a country where tourism is still a nascent business. New hotels in the major cities and dotted along the country’s 2,000-mile coastline and islands seem to sprout weekly, with much more in the pipeline as developers and brands rush to plant a flag in what promises to be an indefinite vibrant market.
Hotel development in Vietnam has gotten a boost in recent years as the central government has embraced the idea that tourism is good for the country. Banks, too, at last see the potential of hospitality real estate projects and are more open to lending, said Baron Ah Moo, founding partner of BLI Capital Group and a U.S.-based consultant with a long history of advising on projects in the country.
The result is that money is materializing from investors in Hong Kong, Singapore, others in Southeast Asia and home-grown developers angling for a piece of the action. The three major cities — Hanoi, Ho Chi Minh City and Danang — are established travel destinations and have seen an uptick in international arrivals along with new hotel construction. A fourth destination, Nha Trang/Khanh Hoa, has been a hotbed of development and saw a whopping 70% jump in international visitors last year.
But that sprawling coast with its pristine beaches has beckoned many investors. A sampling of activity:
• Hue, the nation’s historic capital, saw inbound foreign visitors jump by more than a third last year, thanks to an influx of budget airline carriers. Its supply of hotel rooms is limited, especially at the 5-star level.
• Cam Ranh, where several dozen projects will more than double the number of hotel rooms, is doubling airport capacity to accommodate an expected influx of travelers.
• Phu Quoc, an island destination, is expected to have 17,500 rooms by 2020, but the airport still serves relatively limited international flights aside from seasonal charters.
Another factor contributing to demand for new lodging product is the rise of Vietnam’s middle class. Thanks to an influx of investment over the past three decades, GDP has expanded 6.2% annually since 2007, raising the standard of living and creating a more mobile populace with an appetite for travel. This emerging group is feeding demand for more select-service properties, a category dominated largely by independents with a lot of room for growth.
Properties under development tend to look a lot like what is already up and running, observed Mauro Gasparotti, Savills director, Southeast Asia, who believes Vietnam needs to offer a more diverse inventory. “You go from small family hotels in the city center to the 4- and 5-star market,” he said. He thinks the high-end resort has potential and the boutique segment, which is strong in other Asian tourist destinations, could benefit from more competition.
In fact, AccorHotels’ design-driven Sofitel MGallery in Hanoi is one of the city’s best-performing properties, he noted. “The country’s food and culture are very strong and could easily be brought into the design.”
It’s not all smooth sailing. Visas remain a sticking point — Vietnam is a bit stingy when it comes to approving visitors from many countries, especially compared with neighboring tourist-friendly destinations, and visas are limited to 15 days. “The visa is something that needs to go away eventually,” said Pieter van der Hoeven, area general manager for Minor Hotels, Bangkok. “The government is slowly getting their head around the idea that we need that to be competitive with places like Thailand. It might not happen in the next 18 to 24 months, but they understand the importance.”
Inadequate infrastructure is seeing much-needed upgrades, though some projects are not progressing as quickly as operators would like. Airline capacity is another pain point slowly getting resolved. Airports in Da Nang and Phu Quoc, for example, will need to see more incoming seats once all the hotel inventory in the works come online. “Land is relatively cheap,” said Robert Hecker, managing director, Pacific Asia for Horwath HTL. “So developers look at the land price, but they don’t look at what it takes to get people there.”
A number of observers point out that Vietnam tends to attract one-and-done visits, with curious travelers targeting a single destination, then moving on to the next vacation spot. “Compared to Thailand, where the number of repeat visitors is around 60%, it’s very low in Vietnam,” Gasparotti said. Efforts by the government or tour operators to create multi-city packages could change that. So could additional tourist activities like dining, shopping and entertainment.
Newcomers also face a steep learning curve. “You can’t just go in there by yourself,” said Felix Lai, director of investments for Gaw Capital in Hong Kong. “You have to find credible partners, maybe one of the local developers, because it’s still an emerging market. It’s a lot like China was 15 years ago, where the rules aren’t clear and things can take a long time to get approved.”
The players
Investors from Singapore, Japan, South Korea, Thailand and Malaysia have seen the potential of Vietnam, but some of the busiest developers these days are home grown. Sun Group is behind two high-profile recent projects — the J.W. Marriott Phu Quoc and the InterContinental Danang Sun Peninsula Resort — and has deals to open St. Regis and Ritz-Carlton properties over the next several years.
Vingroup, another large developer, is building a US$870 million island resort near the Chinese border — a logical choice, given that China is the largest source market for Vietnam; the company already operates 18 resorts along the coast under the Vinpearl flag. And in 2016 VinaCapital, a domestic real estate asset management firm, signed a US$300 million joint venture with U.S. private equity player Warburg Pincus to develop and acquire luxury resorts in Vietnam and other Southeast Asia locations. The company also is a partner in Hoiana, a US$4 billion integrated resort in the works in central Vietnam.
Minor Hotels has been active in the past few years, opening four coastal resorts under the Avani and Anantara flags, and van der Hoeven expects to announce several more projects this year. He sees the best opportunities in the ultra-luxury and midscale segment, based on growing demand from affluent tourists and Vietnam’s middle class.
Vietnamese banks favor projects associated with proven management companies and franchise brands, and plenty of suitors are lining up to take on the challenge. Accor, a veteran operator in the country, is well-positioned to address travel demand, with 26 hotels up and running, ranging from economy to ultra-luxury, and 15 in the pipeline. The most recent addition was Vietnam’s first Ibis Styles, a 310-key economy property in the Nha Trang beach community.
IHG has eight hotels in development, from an InterContinental Resort in remote Sapa to a Holiday Inn & Suites at the Ho Chi Minh Airport. IHG recently opened its second InterContinental property in Hanoi. Marriott, with 15 Vietnam projects in the pipeline, is focusing some of its efforts on building out select-service brands, with a Four Points by Sheraton opening in Danang this year and a Courtyard by Marriott slated for Nha Trang.
Movenpick Hotels & Resorts has one hotel open in Hanoi and six hotels set to open over the next three years — primarily coastal resorts — as part of an ambitious Asian expansion strategy.
Bangkok-based Absolute Hotels Services Co. has five hotels open or on track to debut over the next two years in Vietnam under the U Hotels & Resorts and Eastin Hotels & Resorts Brands. “It’s definitely one of our largest markets and growing,” said CEO Jonathan Wigley.
Vietnam is emerging from its diamond-in-the rough status to become a true gem. “I think the time is right and the market will only continue to grow,” van der Hoeven said. “Vietnam has so many natural assets — the people, the food, the natural beauty, a massive and varied coastline and the ability to have a lot of experiences.”
Vietnam pipeline – Winter 2018
Projects Rooms
Under Construction 54 18,241
Starts next 12 months 29 5,796
Early planning 30 7,431
TOTAL 113 31,468
Top franchisors
Marriott International 15 4,578
AccorHotels 15 3,323
Hilton 9 2,467
IHG 8 2,381
Top brands
Movenpick 6 1,606
Alila 5 620
Novotel 4 1,073
Sheraton 4 1,070
Top markets
Ho Chi Minh City 14 3,155
Da Nang 14 5,345
Hanoi 13 2,913
Khanh Hoa 1 330
Source: Lodging Econometrics
Contributed by Megan Rowe