Vietnam’s Hospitality Industry: Understanding Current Trends and Challenges

May 26, 2017 Posted by Vietnam Briefing Reading Time: 5 minutes

By: Chau Pham

Viet Nam is rising in its popularity as a tourist destination in South East Asia. In 2016, the number of international guests which visited the country reached over 10 million people, representing an increase of 26 percent. Home to diverse attractions and delicious food, Vietnam provides appeal for a wide range of travelers. As interest continues to mount, so too do opportunities for investors catering to the hospitality industry. The demand for leisure activities and accommodation, especially four to five-star hotels remains particularly high and government support programs are also increasingly playing an important role by providing incentives to investors.

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Luxury hotel market in Vietnam

According to the latest information provided by the Vietnam National Administration of Tourism (VNAT), international tourist arrivals and receipts show steady growth. In 2015, Vietnam’s tourism receipts reached up to 338 trillion VND (approximately 14.86 billion dollars). In recent years, the hotel segment has performed particularly well with significant movement in terms of occupancy and price. It is reported that the average room rates increased 21 percent quarter over quarter and 41 percent year over year. The annual occupancy rate of four to five-star hotels was also up to 61.5 percent and 62.7 percent respectively in 2015. On top of this, the divergence in pricing between four and five-star accommodation shows a maturing of the hotel market and increased opportunity for those specializing in particular tiers of accommodation.

While national trends are encouraging, certain cities are likely to fair particularly well in the coming years. On the horizon, Nha Trang, Phan Thiet or Da Nang are quickly becoming a new trend for traveling in Vietnam, however, Ho Chi Minh and Hanoi City still remain the most popular cities to visit with 4.4 million and 3.0 million international arrivals recorded in 2014 respectively. According to research by CBRE Hotels, Hanoi has kept up with Bangkok in regional occupancy rates. The two cities also ranked 6^th and 7th, after tourism hubs such as Singapore and Hong Kong.

The supply of luxury hotels in Vietnam’s top cities has been rising. Ho Chi Minh City is expected to start construction on a number of five- star hotels in 2017 while Hanoi is expected to add nearly1000 five-star hotel rooms within the year. Despite this growth, the demand for luxury hotels is still surprisingly greater than the supply. It is also expected to increase in the following years as the government has put more focus on the tourism industry, offering more opportunities for FDI to step in.

Opportunities for investment

The Tourism and hospitality industry plays a key role in national economic development, thus the Vietnamese government has provided a lot of incentives and policies to encourage and attract investment. With recent improvements to the law on enterprise and investment, the country is now more open for foreign direct investment than ever before. Foreign companies are permitted to open a company with 100 percent foreign-owned capital. In addition, government investment in infrastructure will improve overall connectivity which provides a better condition for investors to start building up hotels. In the next two years, Tan Son Nhat Airport in Ho Chi Minh City is planning to increase its capacity to welcome 38 million passengers coming from all around the world. More direct flights from Russia, HongKong, Korea and even the United States of America are going to be organized to keep up with the rising demand of travelers.

As the number of people coming to Vietnam for business purpose keeps increasing on the heels of strong investment inflows, the demand for four to five-star hotels is expected to grow even stronger in the upcoming years, especially as Vietnam diverts more investors fromChina, where foreign companies are struggling with increasing costs.

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Challenges

In order to develop and effectively run a five-star hotel in Vietnam, investors will be required to navigate a variety of challenges prior to the commencement of operations and during the lifetime of the investment. During the pre-opening process, a lot of documents and paper works are required by Vietnamese Government. For example, Investment projects of any type must be registered with the Department of Planning and Investment. The process is quite complex and will take longer time than other countries in the region as a result of Vietnam’s emerging regulatory infrastructure. As such, having a good knowledge of all applicable taxes and legal hurdles is an important factor for investors to do business in Vietnam.

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