The growth of tourism is creating opportunities for the hospitality market, especially the mid-end and high-end segments, according to Savills’ latest review.
In 2016, the total rated travel accommodation supply in Vietnam was up 18 per cent year-on-year to 420,000 hotel rooms, commensurate to tourism industry development.
Enhanced tourist flows are creating more opportunities for the hotel market, especially in the upper-mid to high-end segments.
From 2013 to 2016, the supply of four and five-star hotels increased 20 per cent on average to meet international tourist demand for upscale resorts and luxury accommodation.
As major economic hubs, Ho Chi Minh City and Hanoi attract the most tourists. Meetings-Incentives-Conventions-Exhibitions (MICE) and business travelers accounted for over 40 per cent of total international arrivals to Vietnam.
In 2016, there were 5 million visitors to Ho Chi Minh City and 4 million to Hanoi.
Previously the only international points of entry by air, arrivals in Ho Chi Minh City and Hanoi are now being marginally undercut by growth in capacity and the number of direct flight to other key cities.
On the other hand, increased ease of travel has made Vietnam far more attractive. Emerging coastal destinations such as Da Nang, Nha Trang, and Phu Quoc Island are becoming more competitive, with direct international flights.
Hanoi remains the gateway for tourists to northern provinces and likewise Ho Chi Minh City remains the gateway to Mekong Delta provinces, but the central region is becoming increasingly self-reliant.
In 2016, Vietnam’s resort cities and islands outperformed Ho Chi Minh City and Hanoi with higher international inbound growth rates.
A tropical island location makes Phu Quoc an attractive destination and a new alternative for international travelers, with an arrival growth rate of 40 per cent.
Da Nang, at over 30 per cent, and Nha Trang at 23 per cent also exceeded the international arrival rates of Ho Chi Minh City at 10 per cent and Hanoi at 19 per cent.
Ho Chi Minh City has the largest hotel supply in Vietnam, with approximately 16,000 three- to five-star rooms, 70 per cent more than Hanoi.
In 2016, both had similar occupancy rates of approximately 70 per cent, but future supply rates will diverge.
Over the next three years, Ho Chi Minh City expects 3,500 new rooms, a 22 per cent increase. Pressure will be higher in Hanoi, with future supply accounting for up to 50 per cent of current stock.
Nha Trang has the largest hotel supply among coastal cities, with over 12,000 three- to five-star rooms and the highest occupancy rate.
In 2016, the city had 1.2 million international arrivals, which was 30 per cent lower than Da Nang.
The average Length of Stay (LOS) varies among popular destinations. In 2016, the international tourist LOS in Nha Trang was 3.5 days, compared to 2.8 days in Da Nang and 2.6 days on Phu Quoc.
Da Nang appeals to both domestic and international visitors, with an international airport and location along the Central Heritage Road, which comprises Hoi An ancient town, the My Son Sanctuary, the Imperial City of Hue, and Phong Nha caves. However, this ease of access also diminishes Da Nang’s ability to increase tourists’ LOS.
Phu Quoc is an ideal destination for high-end hospitality, and as of the fourth quarter of 2016 the five-star segment accounted for 71 per cent of the 2,500 three- to five-star hotel rooms.
However, as an early-developed market, a large future supply may challenge developers to improve performance.
Vietnam is a rapidly growing Southeast Asian tourism destination. However, inbound travelers are less than half of those visiting the most popular ASEAN locations of Thailand and Malaysia. This gap represents significant potential.
Inbound travelers have tripled in the last decade and a 26 per cent year-on-year increase in 2016 saw Vietnam outperforming other regional destinations.
According to the Ministry of Culture, Sports and Tourism, there were approximately 10 million international arrivals in Vietnam in 2016.
This growth is expected to continue, with approximately 18 million annual visitors anticipated by 2030.
China and Russia are Vietnam’s fastest growing inbound source markets. Russia has a tourist visa exemption and its population prefers Vietnam for holidays, particularly because of its lower costs relative to other destinations in the region.
Even in the wake of sanctions and a depressed Ruble, Russian arrivals to Vietnam have steadily increased over the past few years.
The growing middle class in China is creating greater outbound travel demand, especially to more affordable ASEAN destinations.
In 2016, Vietnam had a combined 2.7 million business travelers and tourists from China, a 50 per cent increase over 2015. China-based ASEAN inbound visitors are forecast to double over the next ten years, according to Goldman Sachs in 2015.
The country’s rich geographic and topographic diversity and local micro climates support a variety of tourism appeals.
Fast-growing increases in household and personal income over the past five years have contributed to a 15 per cent expansion in Vietnam’s domestic tourism.
Low-cost airlines have been a growth catalyst, and from 2014 to 2016 Vietjet Air increased its fleet size from 18 to 45 aircraft.
To further encourage growth in domestic tourism, the government approved a decree allowing Vietnamese to gamble in casinos under certain conditions.
While gambling remains labelled by the National Assembly as a “social evil”, this new legislation is indicative of the leadership’s commitment to supporting tourism growth and widening regional competitiveness.
Photo: CBR Investment AG