HCMC Upscale Hotel Market Year-End Review and Forecast

Alternative Real Estate Service Co., Ltd
Unit 23, 26 Ly Tu Trong Street
District 1, Ho Chi Minh City
Vietnam
ALTERNATY FEATURE ARTICLE – 11 February 2015
HO CHI MINH CITY UPSCALE MARKET – YEAR END REVIEW AND FORECAST
In Ho Chi Minh City, the number of five-star hotels has increased gradually from 1990 to 2014 up to
16 upscale properties, effectively offering 5,146 rooms in total. This growth amounts to a
remarkable 30% increase since 2007. The newest upscale hotels include Tan Son Nhat Saigon,
Novotel, which came on line in 2013, and Pullman Saigon Hotel, which officially opened in 2014,
whilst a number of two- and three-star family hotels have opened, albeit at lower rate compared to
previous years due to challenging financing availability for single private investors in the past two
years.
The majority of the Upscale to Luxury hotels in HCMC are clustered in District 1, representing a total
of 3,921 rooms (76% of the total supply). Only two other upscale hotels are located in District 5 and
the remaining hotels are located in Phu Nhuan district, in close proximity to the airport. Due to the
cluster of financial and business offices in the area, District 1 is still perceived as the most favorable
location for Upscale and Luxury hotels. However, the limited availability of land, the new metro
system, and the decentralization of residential and commercial facilities, may incentivize investors in
Mid to Upscale hotels to explore opportunities in secondary locations including District 7, District 2,
Phu Nhuan, and District 3 which, as of today, are only hosting affordable mid-scale accommodations
targeting local business travelers. Decentralized locations are still the preferred option for serviced
apartments or properties targeting long-term stay, also receiving daily travelers, families, and
business visitors looking for larger spaces.
Most of the upscale hotels in HCMC are operated by international operators, accounting for
approximately 75% of the total existing supply. The remaining portion is either self-operated or part
of the Saigon Tourist portfolio which includes properties such as the Majestic and the Rex. Due to
the presence of several family run properties in the budget to mid-scale market, very few
international brands have been used. Ibis in District 7 is the only mid-scale property in HCMC with an
international brand, although other Ibis and Holiday Inn properties are currently being planned for
more centralized locations.
2013 to 2014 saw only four new hotels opening in the upscale market, resulting in a total of 933
additional rooms in the market. This year, with the completion and opening of some of the most
anticipated properties, including The Reverie (formerly Times Square) and Le Meridien, we anticipate
a large increase in room supply in the five-star category. With a total of 636 rooms planned for
release in the market, this will account for a 30% increase. Additional increases in supply in the same
category will be made when Union Square Hotel (formerly Vincom A), opens in 2016. The One and
the Lavenue project, expected to open in 2017 and 2018 respectively, are also presently under
building foundations or site clearance. The expansion of the Majestic hotel and the redevelopment
of Satra Tax Center are also expected to complete in the next 4 years. The Viettel project, located on
Cach Mang Thang 8 street, which includes approximately 424 rooms, is expected to be completed in
2016, and it will be positioned as an upscale property managed under a well-known international
brand.
T +84 836 028 591 E info@alternaty.com W www.alternaty.com

Vietnam
Source: Alternaty December 2014
Source: Alternaty December 2014
Demand
According to the Vietnam National Administration of Tourism (VNAT), the total number of tourists
arriving in Vietnam in the first eleven months of 2014 was registered at 43.6 million, up by 8.3% YoY.
Domestic arrivals accounted for 83.5% (36.4 million arrivals) of the total arriving population and
increased by 8.9% since 2013. International arrivals reached a record 7.2million and increased by
5.4% since 2013.
Total tourist arrivals to Ho Chi Minh City increased steadily from 2.6 million to over 4 million with an
average growth rate of 11.4% during the period between 2009 and 2013. In the first 11 months of
2014, the city welcomed approximately 3.9 million international tourists, an increase of 7% YoY. This
comprised approximately 50% of the total number of international arrivals to Vietnam.
The vast majority of guests who stay in upscale and luxury hotels are foreign. Some of the properties
in HCMC target specific markets. Properties such as Hotel Nikko, Windsor Plaza, and the Lotte
Legend Hotel cater towards the Asian demographic with more than 30% of its clientele coming from
specific Asian countries. Park Hyatt and the Sheraton, on the other hand, cater more to European,
American, and Australian visitors. Based on our internal survey, the Japanese market is still a strong

Vietnam
segment in HCMC with particular potential for the corporate travelers and long-term guests even if
the majority of the respondents favour a 1 bedroom unit to hotel rooms with size of at least 45sqm.
Some of the upscale properties have shifted particular attention towards the Japanese market with
dedicated marketing personnel targeting Japanese corporate and business travelers.
Hotel Performance
The HCMC upmarket can be clearly divided into three separate segments: the Luxury Segment, with
Hyatt leading the rates, the Upper Upscale Segment, where properties like the Renaissance, Rex and,
Sofitel hotels, among others, could be placed, and the Upscale Segment, which includes
decentralized five-star or international standard four-star properties.
There is an evident gap between the different groups, with the luxury segment leading the market at
an average rate of US$170/night, followed by the upper upscale group trading at approximately
US$118/ night. The upscale group is trading at an average rate of US$90/night, almost half that
compared to the superior five-star. This is because the upscale five-star group is composed of
properties that are generally older and less attractive due to their locations, management, or
orientation towards the local market or group travelers. The upscale five-star properties are usually
located outside central districts and target large-group travelers, transits, aircrew members, or
management-level local business travelers. The overall market ADR has been relatively stable in each
category for the past two years, as signs of balance in growth in demand and supply with limited
new openings have been experienced.
In 2015, we anticipate an increase in the average market rate due to the opening of the Le Meridien
and The Reverie, which are expected to compete in the luxury segment, and the completion of the
Caravelle renovations. Even if the hotels do not anticipate an increase of rates, by increasing the
room count in the higher category, the overall average market rate will increase on its own.
Occupancy
Looking back at 2014, it was expected to be a particularly strong year for the five-star market in
HCMC, with the first quarter gave several positive signs of strong performance throughout the whole
year. However, the political tension between Vietnam and China in Q1/Q2 negatively impacted guest
arrivals with several cancellations from groups and MICE business that was felt at different levels
from various properties depending on the main target markets. That short period of instability
affected the trading performance for the whole year by slightly reducing occupancy level in what
could have been a remarkable year for the majority of the HCMC properties.
The overall hotel market has shown significant signs of recovery since 2012 through a stable growth
to a level above 60%. The luxury segment led the market in 2013 and 2014 with the highest
occupancy among the segments, trading at 71% within this group. However, there is a notable
difference between the highest priced option and the rest of the set, where hotel trading at
premium rates achieve a lower volume of occupancies at approximately 65%. The Intercontinental
Hotel and Sheraton Hotel are among the best performing properties in the market with annual
occupancies registered above 75%. A stronger competition level is felt in the upscale segment, with

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some superior three-star or four-star hotels offering value for money accommodation in attractive
CBD locations and challenging the decentralized larger five-star properties. This has turned the
market into a fierce competition in the upscale segment, resulting in a lower rates and lower
occupancies levels which are expected to be registered at 66% for 2014. That said, some of the most
recently opened international four-star properties, when located in more central streets, are
reaching remarkable level of occupancies, trading at levels also above 75%.
With regards to the long-term guests, the demand for the serviced apartment market also seems
strong in HCMC with the average market occupancy at 84%. Intercontinental and Summerset District
1 are leading the market, but so are a number of smaller, unbranded properties running at full
occupancy, especially in residential locations like District 2.
The market occupancy in 2015 is expected to be challenged by the large amount of new openings in
the luxury segment. However, the flow of new rooms should be balanced by the closing down of
some properties due to renovations expected to take place in the coming months with some
properties anticipated to close down entire floors or businesses. This group includes Park Hyatt,
Sheraton, Continental and the New World Hotel, along with the ongoing work on the Caravelle
rooms. No committed schedule renovations have been announced and some properties may delay
the work to the following year.
Conclusion
HCMC may have passed a period of economic tension due to the troubled relationship with China,
but we are still extremely positive on the long term prospects of Vietnam’s economic capital hotel
industry. Visitor arrivals have been steadily increasing over the past years. International tourists are
enjoying a newly developed and charming destination with plenty of coastline recreational areas,
and business travelers are capitalizing on the country’s continuously rising economy.
The recent fluctuation in currencies is expected to have influence on the travel industry with
countries like Russian being particularly hit by the devaluation of the currency. However hotels in
the main cities should be less affected by decrease of Russian tourist if compared to beach
destinations. Nha Trang, Mui Ne and Phu Quoc will be among the most disadvantaged by the weak
ruble. Chinese tourists are still among the largest potential growing market for Vietnam. More than
100 million outbound border crossings were made from China during the first 11 months of last year,
in which 89% Chinese travelers stayed within the Asian continent. The mass of Chinese travel will
remain Asia-based and Vietnam could be a natural first choice destination for them, due to the
proximity and stunning beaches. However, whilst countries like Thailand using the visa o arrival for a
long time to facilitate tourism, along with Indonesia and Malaysia planning to introduce visa on
arrivals and visa free policies for Chinese tourists, Vietnam is still far behind the neighbor’s countries
incentives policies.
Several opportunities are available in the hospitality business in HCMC ranging from low-cost, high-
volume international hostel models to the larger, mixed-use complexes which includes retail and
office components able to drive local and international attention for conferences and MICE
businesses. The market is also open to development opportunities for branded, mid-scale hotels of

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international standard, a segment still not fully explored, with the majority of future branded supply
will be concentrated only towards upscale and luxury segments. Specific locations such as those
close to the airport or new urban areas could be prime options for budget or mid-scale hotels.
Affordable, well-managed serviced apartments are also a category that has not been explored much
by local investors, especially in areas such as District 2 or District 7 where the demand for long term
rental is still very high.
As final thought, we believe the tourism market in Vietnam to be at incredible potential for further
strong growth, HCMC has been the leading city to business travellers and MICE, with remarkable
hotel performances. Overall, if compared to other Asian destination, the total number of room count
is modest with very attractive upside return potential. This will give much more space for hospitality
related investment from local and international players. We believe 2015 will be an interesting years
for developers, investors, hotel operators and hotel consultants with hotel buildings start again to
take shape after few years of slow construction activities.
**********************************
About Alternaty
Alternaty is a market leading real estate consulting firm specialized in the hotels and resorts sector
and based in Ho Chi Minh City, Vietnam.
Alternaty’s bespoke consulting services include initial project planning, feasibility study, market
analysis, cash flow projections, hotel operator selection and developer representation.
Clients include international developers and some of Vietnam’s largest real estate firms, banks and
state owned enterprises for whom Alternaty is acting as real estate development advisor on
landmark projects throughout Vietnam, Cambodia and Lao.
Alternaty was highly commended in the Best Property Consultancy (Vietnam) category at the South
East Asia Property Awards held at the Shangri-La Hotel in Singapore in October 2013.
For further information contact: Alternaty – Alternative Real Estate Service Co., Ltd.
Rudolf Hever
Executive Director
Mobile +84 933 902 530
rudolf.hever@alternaty.com
Mauro Gasparotti
Executive Director
Mobile +84 908 556 492
mauro.gasparotti@alternaty.com
Nhung Pham
Business Development Manager
Mobile +84 934 345 630
nhung.pham@alternaty.com

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