Sparkle of Hanoi 5-star hotels begin to wane

JW Marriott Hanoi Hotel will open in a competitive market

Richard Leech, executive director of CBRE Vietnam told VIR that the current period was far from ideal for real estate developers to invest in five-star hotel projects in Hanoi as the high-end slice of the accommodation pie was braced for a huge influx of new supply, while average room and occupancy rates were on a downward trend.

“We have seen that the recent downturn in the hospitality industry has prompted real estate developers - mostly foreign-based - to shun the high-end hotel sector, while several are seeking opportunities to transfer their hotels,” added Richard Leech.

Leech claimed that at present, average room rates at five-star hotels in Hanoi stood at under $100 per night and were still tumbling, while the occupancy rate had slid to 57 per cent.

Hanoi’s hoteliers were likely to face fierce competition as total supply would increase by 10 percent by the year-end following the opening of two major five-star hotels in the fourth quarter, thanks to the 450-room JW Marriott and an up-market 359-room hotel in Landmark 72 Tower. 

Savills research revealed that 42 hotels have received investment licenses and will begin operations in the near future, with 23 projects alone accounting for approximately 6,800 rooms. Five-star hotels accounted for the largest proportion, with 4,760 rooms or 73 per cent of total future rooms and 120 per cent of current 5-star room stocks.

Tu Liem district – the capital’s increasingly popular business area will host the majority, with an estimated 3,000 rooms, accounting for 45 per cent of total future hotel rooms in Hanoi.

Savills research and consulting associate director Tran Nhu Trung said that hotels were less attractive real estate propositions, as the sector was only marginally profitable at the current time. 

Several hotels are up for sale, but have met limited interest, except where the developer could provide evidence of improved business in the future. “The problem is how fixed the market value is,” added Trung.

Bui Tung, director of sales of the five-star Nikko Hanoi, said that the hotel’s business market had improved in the third quarter, but was still below the same period last year due to the economic situation and increased supply. Nikko Hanoi had achieved an occupancy rate of around 64 per cent, with the average daily rate reaching $110 per room per night and a revenue per room rate of $70.

However Tung was upbeat despite the difficulties facing the market. He stressed that while the hospitality sector overall was suffering, some hotels could still post good returns. He cited year-on-year increases in tourist numbers as accounting for high occupancy rates during peak holiday seasons, but warned that investors should ideally focus on good locations and be well aware of the current state of the market.