A boost to Vietnam’s luxury resort real estate

Despite opening up to international tourism activities in March 2022, Vietnam's tourism industry is still facing many challenges.

>> Resort real estate needs to cross the path to rise up

2023 has started off well for the hotel industry globally. Before the epidemic, more than 60% of the worldwide supply had already surpassed the 2019 RevPAR norms. In contrast to the pre-pandemic period, just a few hotels have exceeded room occupancy, which has primarily been the driver of RevPAR growth.

With China's reopening in January 2023, several regions of the world, especially Southeast Asia, are prepared to welcome the return of Chinese tourists. About 32 million Chinese visitors traveled to Southeast Asia in 2019, making the resurgence of this market a key factor in the region's tourism sector's comeback.

Challenges and motivations

Despite welcoming foreign tourists in March 2022, Vietnam's tourism sector still has a lot of obstacles to overcome. Pressure has intensified as a result of the country's heavy reliance on the Chinese market and the possibility of an excess in some locations, which has made the recovery process slower than in other nations.

International arrivals to Vietnam increased significantly prior to the pandemic, with an average growth rate of 16.9% per year in the years 2009 to 2019 (Mauro Gasparotti, Director of Savills Hotels APAC). Between 2017 and 2019, there was a surge in the development of resort developments, particularly mid- to high-end hotels, with an average of 10,000 new rooms opening each year.

It will take a lot of work for the resort real estate business to fully recover, according to Mr. Mauro. "The pandemic has delivered a tremendous blow to the growing momentum of the industry," he added. Vietnam's tourist business requires a demand growth of 20% to 30% annually to keep up with this supply growth rate because a significant amount of supply was planned and developed prior to the COVID-19 epidemic.

Several obstacles stand in the way of the tourism sector's recovery because of the absence of Chinese tourists. China accounted for about a third of Vietnam's 18 million foreign visitors in 2019. Even some coastal locations, like Nha Trang, where Chinese tourists made up 70% of all foreign arrivals, significantly relied on this source of tourists.

Coastal markets like Da Nang, where resorts are registering occupancy rates surpassing 50%, are benefiting from the recovery process, according to Mr. Mauro, who also credits the Korean market and domestic tourism sources. Due to China's market still not having reached pre-pandemic levels, Nha Trang is still severely impacted.

According to Savills Hotels data, Nha Trang has more than 24,000 mid- to high-end rooms available, with roughly 50% of those opening between 2017 and 2019. The government and companies in Nha Trang must work together to repair the community's reputation in order to draw in more tourists.

While China allowing the reorganization of tourist groups to Vietnam is a recent highlight, it should also be noted that being too dependent on one market poses many risks due to the volatile nature of the tourism industry.

>> Vietnam's hospitality property market looks positive

Investment opportunities

Urban locations have demonstrated stronger business performance as compared to coastal tourism attractions. In Ho Chi Minh City, hotel room occupancy is gradually increasing back to pre-pandemic levels. Despite an increase in hotel occupancy, Ms. Uyen Nguyen, Head of Consulting at Savills Hotels APAC, claims that the average room rate in metropolitan areas is still 15% to 20% below what it was in 2019. However, the industry has witnessed a number of hotels that prioritize customer satisfaction and service, such boutique hotels, that have met or surpassed 2019 costs.

The demand for lodging in resorts close to important cities increased in 2022, but demand has been somewhat declining since the start of this year. Foreign travel demand has increased as a result of other countries removing their admission barriers.

According to Mr. Mauro, the Vietnamese tourism sector has to diversify its lodging options and tourism offerings, and service quality needs to be raised. Without taking the appropriate model for current trends into account, many investors have simply duplicated already-existing products. Despite growing market competition, there are still plenty of chances for investors who can understand the demands and preferences of tourists in the resort real estate sector.

Poshtels, resort complexes with entertainment venues, select service hotels, and co-living models are examples of new models that can be considered in the Vietnamese market and cater to the needs of young local and foreign tourists. Despite the limit ed number of branded products available, the industry has the ability to create luxury projects in city centers and other places.

"The demand for resort products that focus on health care is increasing, with many models that can be considered, such as resorts with yoga and therapy facilities, residential areas for the elderly, and senior living options. Additionally, a resort that combines health care and a high-class eco-resort in the vicinity of major cities is also a potential option. Accordingly, the market will need to shift its focus from quantity to quality, with an emphasis on creating highlights and improving operational efficiency," added Ms. Uyen Nguyen.

Regarding the current investment and project development activities, Mr. Mauro said, "Accessing capital has become more challenging. However, according to our observations, many foreign funds and investors are very interested in looking for suitable investment opportunities in Vietnam. Personally, I think that developing villas and resort apartments according to the condotel model is a good channel to access capital, but this process needs to be carefully planned to bring value to investors, owners, and guests.

Investors should prioritize the quality aspect of the project over its scale, as this will help the project increase in value over time. This year, the demand for property transfers is high. However, the expected price of sellers does not reflect market volatility factors or the risks facing the industry in the future," emphasized Mr. Mauro.