Vietnam's Coming Of Age
By Karyn Strauss, Senior Editor -- HOTELS Magazine, 1/1/2007
VIETNAM The mystique of Vietnam—with its rich history and miles of pristine beachfront—has caught the attention of global hotel companies of late, many of which are anxious to accommodate the record number of visitors to this burgeoning destination. Long relegated to the backpacker set, today the country is becoming a top draw for affl uent adventure travelers. Tourism arrivals are increasing every year as the country expects to welcome as many as 20.9 million tourists this year (3.9 million of them foreign). By 2010, Vietnam is targeting 6 million international visitors.
While hotel supply is growing steadily, demand still outstrips supply. As a result, hotels in the two major cities, Hanoi and Ho Chi Minh City (formerly Saigon), are experiencing record RevPAR. And in addition to the cities, resort development is considered the next great frontier. “Vietnam is coming of age. The economy is growing around 8%, second to China. So not only does Vietnam look good, it is performing well,” explains Karl D. John, CEO of TCK Group, a Vietnambased hotel consultancy. “The traveling public is looking for a new destination. Bali has been racked by bombs; Phuket has seen instability. India has been slow to develop. It has been just over 10 years since the country opened up, and there has been suffi cient ‘observation time’ to make sure that the Vietnamese government is serious about change.”
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Opportunities
As John says, it has been 10 years
since the country opened up to foreign
investment, and six years since the
United States lifted its trade embargo. As
such, the government has made signifi -
cant strides to make it easier for foreign
companies to operate freely, including
recently changing a law to allow for a
100% non-Vietnamese company to establish
itself here—without the need for a
local joint-venture partner. Infrastructure
is improving as well with the government
prepared to inject some US$1.5 billion
into tourism infrastructure by 2010.
With the positive momentum, Western hotel companies have been fueling a boom in upscale hotels. Accor, which has been a pioneer in the market, opening the Sofi tel Metropole Hanoi in 1992, is planning to add four additional hotels to its nine already operating there by 2008. Global Hyatt Corp. opened its fi rst hotel in Ho Chi Minh City last year, and InterContinental Hotels Group is developing a hotel in Hanoi. Starwood Hotels & Resorts entered the market in 2003 and now operates two Sheraton hotels, as does Marriott International, while Hilton Hotels Corp. has one Vietnam hotel. Further, with Vietnam’s upcoming accession into the World Trade Organization this year, tourism prospects—and foreign investment—are only expected to increase. Recently companies from Japan, South Korea, the United States and the UK have sought opportunities there with new investment funds. In fact, according to the Ministry of Planning and Investment, of the US$5.2 billion in foreign investments in Vietnam over the last nine months, tourism and related services have accounted for US$2.3 billion.
“There have been a number of major improvements in tourism infrastructure, including roads and airports, and we are now seeing a second phase of development whereby new tourism destinations are emerging, such as Phu Quoc Island, where we just opened a Grand Mercure hotel,” says Michael Issenberg, managing director, Accor Asia Pacifi c. “Major cities are seeing new hotels being developed largely to cater to business travel but equally there are many resort developments commencing in major tourist destinations. This is driven by the vast increase in tourism in general and, more specifi cally, MICE business from around the world.”
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Six Senses’ Managing Director Bernhard Bohenberger also sees the resort sector as a big growth opportunity. The luxury boutique resort operator fi rst entered the market in 1996 and has four hotels now open, including the justopened Evason Dalat, and an Evason Hideaway at Con Dao in the works. “We have seen a growing demand for visits to our resorts in Vietnam as a ‘mono-destination,’ whereas before the average length of stay was just one to two nights,” Bohenberger says. “We have been amazed by the success of the Evason Hideaway at Ana Mandara, which opened two years ago within a private bay only reachable by boat. We are achieving an average room rate of US$400, which is double what we experienced with Evason Ana Mandara, which opened in 1996. It is now clear that it is as viable to open a high-end resort in pristine locations in Vietnam as it is to do so in markets such as Phuket.”
In addition to governmental support for tourism, security has been touted as another strong factor driving Vietnam tourism. “Aon, the world’s second largest insurance company, called out Vietnam as one of the six safest destinations for travel in the world,” says Barry Israel, CEO, Danao International Holdings, which owns the Sofi tel Dalat Palace, Novotel Ocean Dunes Resort in Phan Thiet and a number of other golf resorts in the country. “There’s no terrorism here, and there is no soil for it to root, either.” Eric Simard, managing director of Victoria Hotels & Resorts, a 10-yearold Vietnamese resort brand, concurs: “Vietnam’s top advantage in comparison with other countries in Southeast Asia is security, especially when terrorism is spreading worldwide.”
Challenges
While the opportunities abound, as
with any emerging destination, so do
the challenges. From a lack of adequate
airlift to continuing bureaucratic hurdles
to move deals forward, setting up shop in
Vietnam takes patience and strong local
guidance. And while operators may have
lofty ambitions for major hotel projects,
to date, no one has really stepped up
to the plate as a major investor. Rather,
the search for proper fi nancing to get
projects realized is still a major obstacle,
says Robert Hecker, managing director,
Horwath Asia Pacifi c, who has been
working on a growing number of hotel
deals in Vietnam of late. “Our market
studies show demand is there, but the
product is not, especially in the resort
market. Most of our projects are resorts,
and in three years of working on them
none have yet proceeded because of
fi nancing and land issues,” Hecker says.
Hecker does say that the tide has turned
for the better, however, in the last three
years as now the majority of developers
are domestic—rather than foreign
“carpetbagger” types. “They are much
more solid and have real connections
on the ground, but there is not enough
capital yet, especially at the 5-star level.
All the major chains want to be there, but
they are not driving the development.”
What he believes is needed is one big
international hotel brand to invest in the
market. “Once you get some new-generation
resorts that start to perform well, I
think we will see more jumping in—and
then the banks. Everyone will just get
more comfortable. Someone just needs to
do one big project.”
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The total number of hotel
rooms grew by 72% between 2000
and 2005 to 95,700.One of the biggest movers, Hecker says, is VinaCapital Group, which has been able to mobilize U.S.-based capital to become the majority shareholder in the Sofi tel Metropole and more recently a 70% interest in Hilton Hanoi Opera Hotel. The group’s fund now is extending into development in secondary markets such as Danang, Hecker adds. Another fi rm of note is Indochina Land, which has developed The Nam Hai, a mixed-use resort and villa complex in Hoi An managed by Singapore-based General Hotel Management (GHM). Its locale on the central coast of Vietnam is one of the notable areas of opportunity, according to John Laing, general manager of Nam Hai. Laing adds that brand recognition of GHM is also a growing benefi t in a country with very few international brands as compared to its competitive set—namely Bali, Thailand and Malaysia.
Yet, once the development is complete, the challenges shift to operations and fi nding a qualifi ed workforce. “Finding the right people and keeping them is a challenge here. “As a result of being shut away, the Vietnamese are only now learning about the importance of human resources management,” John says. Israel agrees, saying, “Because Vietnam has been isolated for so long, the staff we hire doesn’t necessarily have an innate sense of the expectations of international guests.” Not surprisingly, then, operators here are focused heavily on training programs, including English lessons.
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