Vietnamese hospitality to surge ahead in 2019

Mauro Gasparotti, director of Savills Hotels Asia-Pacific

The market has exhibited many projects that are being planned, developed, and opened with the presence of new brands and products.

Demand experienced a remarkable growth of 21 per cent in international tourist arrivals, still considered ­impressive when compared to other destinations in the region.

In ­addition to its strong growth over the last two years, Vietnam has grown tremendously within the last decade as the average growth rate of ­international arrivals to Vietnam amounted to three times the global compound annual growth rate (CAGR) and two times the Asia-­Pacific CAGR.

Throughout Vietnam, 2017 saw overall growth in room rates and occupancy. However, last year only some destinations such as Ho Chi Minh City saw increases in room rates and occupancy, while beach destinations like Danang encountered a slowdown in performance due to the presence of new supplies.

Overall, Vietnam is gradually gaining momentum to transform from an experience destination with limited accommodations and entertainment choices to more of a holiday destination with repeated guests.

Such transformation arises from several factors such as infrastructure improvements with new international routes, policies encouraging tourism, and contributions from the private sector. Vietnam is now comparable to Thailand as of 10 years ago, hence, it should expect substantially similar development.

Furthermore, Vietnam’s hospitality industry is witnessing rising interest from international and local investors. However, recorded transactions have been limited, especially within the operating asset segment, primarily due to the scarcity of inventory and the unwillingness of owners to dispose such properties.

This year, tourism is projected to grow at a slower rate than 2018, but a new global mega-trends will ensure a healthy year

Outlook for 2019

Hospitality has been an attractive sector for financial backers in the last few years due to its consistent growth.

This growth is expected to continue this year partly due to boosts from global megatrends. One of the prominent trends is IT, which has had a tremendous impact on the tourism industry in both the leisure and business sectors. The development of IT in this country will make travel much easier with higher-quality products and many different accommodation options thanks to the help of travel support tools and applications. Smartphones, artificial intelligence (AI), electronic payments, and social media have affected future travel in incalculable ways. On the other hand, demographic and consumer changes, influenced by global megatrends, will significantly increase the travel demand and create an inspiration for new products to catch these trends.

Vietnam is in a good position to capture growth and opportunities. In 2019, we expect that tourism will continue to grow but at a lower rate than the previous year. There will be a new wave of supplies with branded properties coming online, such as Movenpick Cam Ranh or Melia Ho Tram, which could bring these locations onto the international tourism map.

Our main concern for the year is likely the opening of many condotel projects with enormous inventories coming to the market. Condotels are good products only when they are well-studied, planned, and executed. However, these products could heavily damage the market if they are poorly planned and controlled because this would lead to a ­significant depression in term of room rates and occupancy in the medium-term, especially at beach destinations.

Major hubs such as Ho Chi Minh City, due to limited future supply, are expected to maintain good levels of stability in performance.

Co-operation required

We often encourage developers to study new trends and products that have not had much presence in the market, such as branded residence, select service hotels or experience-oriented resorts in order to diversify and capture the needs of a new generation of travellers. However, these products also require investors to have an understanding of concepts as well as ways of co-operation between involved parties to ensure the implementation and feasibility of projects.

We also hope to see more green projects and sustainable development, which will ­become a very important factor for end users. Finally, some previously calm destinations such as Hue or Mui Ne are expected to return to compete with the coastal tourism market with many new development ­opportunities.

Overall, we have a positive ­outlook on Vietnam’s hospitality real estate market in 2019 and look ­forward to positive outcomes for the year ahead.