Rex Hotel in downtown Ho Chi Minh City. Vietnam is expected to see many new hotels in the next few years.
Vietnam's hotel industry is in good health and set to keep growing despite recent moves by several investors to pull out of major properties, experts say.
They say that the withdrawals by investors are strategic, and not motivated by financial difficulties.
However, they add that it is possible that the industry faces a great challenge in the next few years in the form of oversupply.
Fund manager VinaCapital has been trying to sell its stake in Vietnam's best-known hotel, the Metropole in Hanoi. VinaCapital's London-traded Vietnam Opportunity Fund has appointed property firm Jones Lang LaSalle to market its 50 percent stake in the 365-room, French colonial-era hotel.
The fund manager has told investors that its stake in the Metropole was worth US$58.7 million at book value.
Andy Ho, managing director of VinaCapital, said capital withdrawal was a common, frequent occurrence.
The company reviews its projects every six months to consider whether to expand investment or withdraw based on the market situation. The capital withdrawal from Metropole Hanoi is part of its long-term strategy, he said.
Metropole Hanoi was doing much better business than it did years ago, and is also doing much better than other high-profile hotels, he said.
In March, Hong Kong's Crowndale International Corporation sold its 50 percent stake in the four-star hotel Century in Hue to the provincial People's Committee for $2.6 million.
South Korean investor Daewoo E&C also in March sold a 70 percent stake in the five-star Daewoo Hotel in Hanoi to electronics firm Hanel.
Country Managing Director Stephen Wyatt of real estate advisory firm Knight Frank Vietnam, said: "Hotels that have been sold in the past are not necessarily sold because of the economic slowdown. Many of the larger property companies or funds have clear strategies. Some developers want to hold assets for the long term and benefit from rental income and capital appreciation."
Other property companies and funds have a clear exit strategy, so they will hold the asset for a certain period of time and then sell after three to five years, depending on the performance of the asset, he said.
This is very common in most other countries, that developers will construct the building and after it begins operating, they will sell and move on to the next project. Developers want to develop, rather than manage property portfolios, he said.
"As the property market begins to mature in Vietnam, we expect
to see more companies adopting this approach; property development will be seen more as a business with very clear entrance and exit strategies based on rate of returns and performance, which will ultimately provide more activity in the property market," Wyatt said.
Wyatt said Knight Frank continues to receive a number of enquires from many four or five- star international hotels looking to enter the Vietnamese market purely because there is still huge potential.
Many investors have recently expanded or build new hotels in the country. In October, Canada's Asian Coast Development Ltd., started to build the second hotel of its resort project MGM Grand Ho Tram in Ba Ria-Vung Tau Province. The project, valued at $4.2 billion, is expected to have 9,000 five-star rooms and golf courses and casinos when it is completed in 2020.
Accor, the largest international hotel operator in the Asia-Pacific region and in Vietnam, announced early this month the opening of Pullman Hanoi, the first Pullman property in the country.
Previously known as the Hanoi Horison Hotel, Pullman Hanoi recently completed a refurbishment that transformed it into a five-star property. In addition to Pullman Hanoi, three other Pullman hotels are in Accor's development pipeline.
Patrick Basset, senior vice president of Accor Vietnam, Thailand, Cambodia, Laos, and the Philippines, said in a statement that the opening has completed Accor's brand portfolio in the country.
"We now offer a hotel brand for every market segment including luxury Sofitel, upscale Pullman and MGallery, midscale Novotel and Mercure, and economy ibis," he said.
The company said in July, at the debut of ibis Saigon South in Ho Chi Minh City, that it planned to see 16 new hotels open in Vietnam by 2015.
Meanwhile, Starwood Hotels & Resorts is expected to launch early next year the Le Méridien Saigon, with 350 rooms, near the Saigon River. The operator now has several five-star Sheraton hotels in Vietnam, including one each in Hanoi and HCMC.
Local property giant Vingroup plans to launch what it calls a five-plus-star hotel also in downtown HCMC next year. Vinpearl Luxury Ho Chi Minh will become the group's fourth Vinpearl brand hotel and resort property in the country.
France's La Veranda has also implemented investment procedures to build two five-star hotels on Phu Quoc Island.
Wyatt said the hotel market in Vietnam has come a long way in the past ten years, with many of the world's leading hotels in the country such as Sheraton, InterContinental, Park Hyatt and Sofitel with a number of high profile brands waiting to enter the market including the Ritz Carlton.
There is still huge potential for the hotel market in Vietnam, however, developers and operators need to be aware of the many pitfalls, with an increasing amount of supply coming to the market, competition will be fierce, therefore understanding the market and the target customer will become more and more important, he said.
"There is plenty of evidence to suggest we will see more and more hotels in the future. However, far too many hotel developments are built in Vietnam with an expectation that tourists will come and occupancy levels will be 90 percent and above," he said. "Unfortunately, those days are over."
"Hotels that are built in good locations that are well designed, with good room layouts, offering very good quality customer service have a bright future. There is an increasing amount of competition and only the best will survive," he said.
According to property research firm CBRE Vietnam, the last quarter of 2012 was expected to see nearly 300 three or four-star rooms from Eastin Easy GTC, Hong Ha, Hilton Garden Inn, and Candeo come on stream. In 2013, the Hanoi market is likely to welcome nearly another 1,000 rooms from three hotels InterContinental Hanoi Landmark, JW Marriott Hanoi and a 200-room hotel by Huong Lua Group.
The market is entering a high season until April next year, thus demand might go up, but not as fast as the number of available rooms in Hanoi, said Richard Leech, Executive Director, Research and Consulting for CBRE Vietnam.
"The market's performance, especially for hotels in the west, will remain mediocre in the next two years due to the ongoing economic recession and large new supplies," he said. "New projects might slow down completion or delay opening dates. If the situation persists, capital values of existing hotels would certainly be weakened."
Kenneth Atkinson, Managing Partner at accounting and advisory firm Grant Thornton Vietnam, said the first few months of 2012 showed signs of a slowdown in the five-star market with several hotels reporting lower occupancy and room rates than last year. "This is in part due to new room supply in the market and also a change in the arrivals mix with more inter-regional tour groups, preferring three and four-star hotels."
Vietnam attracted more than 6 million foreign arrivals in the first 11 months, up 11.4 percent from the same period last year, official statistics showed.
Wyatt said despite a difficult year for the global and domestic economies, tourist numbers to Vietnam increased year on year, but budgets had decreased.
Occupancy levels are around 65 percent for five star hotels, which is down compared to many other ASEAN countries including Singapore and Thailand.
"One of the concerns for the Vietnamese market is the number of tourists that choose to return to the country is very low, at only 5 percent. If the hospitality industry wants to continue to attract tourists this issue will need to be addressed," he said.
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