HCMC HOTEL MARKET Past, Present and Future Park Hyatt Saigon, April 2010

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1 HCMC HOTEL MARKET Past, Present and Future Park Hyatt Saigon, April 2010 Presented by: Mauro Gasparotti Manager Hospitality CB Richard Ellis (Vietnam) Co., Ltd.

2 2010 Image Growing Young Market Tourist arrivals in Vietnam have increased by an average of 10% per year in the past few years Tourist arrivals in HCMC have increased by an average of 12% in the past few years Tourist Arrival to Vietnam Tourist Arrival to HCMC Millions Millions Source GOS Source GOS Tourist arrivals in 2000 were nearly half compared to With only 4.2 Mil arrivals in 2008, Vietnam is still a young market in comparisons to in Thailand (14Mil tourists) or Malaysia (22 Mil tourist). Also HCMC only 2.6 Mil visitors versus Bangkok 10 Mil or Singapore 10Mil. CB Richard Ellis Page 2

3 2010 Image Local Market Business Visitors.. Where is the real market? Tourism sector expects to welcome 4.2 Mil international visitors and 28 Mil domestic travelers this year The Saigon Times Local travelers will count for more than 85% of total travelers. Millions Expected Travelers (Vietnam) In 2009, despite the economic downturn, the number of local travelers increase in almost every area of Vietnam supporting the occupancy rates in every category. 5 0 Total Travelers Local Travelers International Travelers Source CBREvietnam. Why they travel? Approximately 65 % of visitors in 4-5 star hotel come for business purposes. Increasing compared to past years. Where is the future?.vietnamese Business Travelers. 100% 80% 60% 40% 20% 0% Selected 4-5 star hotels- Purpouse of stay Business/ MICE Leisure Others Source CBREvietnam CB Richard Ellis Page 3

4 2010 Image Hotels Supply In HCMC there are only 52, 3 to 5 star rated properties, providing about 8,000 rooms. Room Supply by Grade No of rooms Star 4-Star 5-Star 5-Star Luxury Source CBREvietnam Shortage of rooms?.maybe Hotel Market HCMC MILAN BANGKOK Total Number of star hotels >300(estimated) Population(Exc urban areas) 6 Mil 1.5 Mil 6.3 Mil International Visitors (08/09 appx) 2.6 Mil 2 Mil 10 Mil CB Richard Ellis Page 4

5 2010 Image Hotels location Where are the properties located? Only three main clusters. Future?. Relocation, Relocation, Relocation. CB Richard Ellis Page 5

6 Past and Present Barriers to entry in CBD of HCMC why not CBD? Limited land available for 4-5 star development in CBD Investment simulation Land Price/m 2 (15,000-25,000/m 2 in central D1) In some cases Value Upon Completion is lower than Land Cost + Construction Cost. Construction costs Land Cost Other obstacles Unclear Compensation timeframes. Hotel business license/star granting Volatile Performance (complicated to forecast ROI) High Inflation Risk/Currency Risk Green Filed Investment Completed Building Value CB Richard Ellis Page 6

7 2010 Image Hotels ownership who owns the properties? HCMC dominated by State Owned companies (Saigon Tourist-Hanoi Tourist ) Also, single high net worth Families will play an important role in the two-three star market. Hotel Ownership in HCMC 100% 80% 60% 40% 20% 0% Source CBREvietnam 5 Star 4-Star 3-Star State Owned Entps Joint Venture Family More than 50% of the four star market and 30% of the five star market is owned/minority participation by State Owned Companies Almost 30% of three star is own as a Family Business (Own the land-build the hotel-run the hotel) Vietnamese Hotel Chains in rapid expansion: A&M (Family), Liberty Group (Gov Participation), and Dragon Hotels (Family). CB Richard Ellis Page 7

8 Past and Present Hotel management who manages the hotels? International Management Companies expanding in Vietnam Accor Accor Sheraton Sheraton Marriot Marriot Hyatt IHG SwissBelhotel Pan Pacific Nortfolk Movenpick In HCMC, in 2000 there were only 3 International Hotel Companies, currently 10 International Brands are operating hotels in HCMC. Also local Vietnamese companies offer Hotel Management (Celadon and SS Hotel) CB Richard Ellis Page 8

9 Past and Present Evolving Market (4-5 Star Hotel Performance ) Crisis? What Crisis? Average Daily Rate (MAT) United States - Dollar Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Source: STR Global/CBRE Hotels Singapore Thailand Indonesia Philippines Vietnam Kuala Lumpur 2009 Second highest Average Daily Rate in Asia Pacific HCMC ADR in is approximately $130, only 15% lower than Rome ($150) and 30% lower than London ($180). CB Richard Ellis Page 9

10 Past and Present Evolving Market (4-5 Star Hotel Performance ) 2009 Second highest RevPar in Asia Pacific (but getting closer to other markets due to the decrease in occupancy) CB Richard Ellis Page 10

11 Past and Present Evolving Market (4-5 Star Hotel Transactions in Vietnam) Hotel Transactions (Upscale to Luxury) $400,000 $300,000 $200,000 $100,000 $ (Q1) Number of Transactions Average Value Per Room The number of sales peaked in 2007 followed by The value per room peaked in 2007(end of) with two major acquisitions in Hanoi. CB Richard Ellis Page 11

12 Past and Present HCMC Occupancy rates Occupancy Rates HCMC Q Q % 70.0% 50.0% 30.0% Jan Feb March 2009 Luxury 2010 Luxury 2009 Upper-Upscale 2009 Mid-Upper Scale 2010 Upper-Upscale 2010 Mid-Upper Scale Source CBRE research Strong recover in Occupancy Rates in Q in part due to the rates reduction in the Upper-Upscale category March occupancy higher than 85% for some properties. CB Richard Ellis Page 12

13 Past and Present HCMC ADR HCMC ADR 2009-Q $ % 90% 80% 70% $200 60% 50% 40% $100 30% 20% 10% $0 Jan.2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan.2010 Feb March 0% Luxury Upscale Upper-Upscale Average market occupancy Source CBRE research CB Richard Ellis Page 13 Sharp decrease in room rates especially in the luxury segment HCMC still Superior ADR compared to other cities Decreased room rates has positively affected the occupancy

14 Present and Future New supply Year of Completion Projects Management Location Number of rooms LIBERTY 6 (Completed) Self D (473 rooms) GOLDEN TOWER (Completed) SAIGON GIVRAL Self Self D.1 Phu Nhuan Dist NEW PACIFIC Self D (1,175 rooms) GRAND EXTENSION NIKKO SAIGON Self Nikko D.1 D TIMES SQUARE Self D LE MERIDIEN SAIGON Starwood D NOVOTEL SAIGON CENTRE Accor D (1043 rooms) IBIS BEN THANH PALACE MAJESTIC EXTENSION Accor Self D.1 D IBIS SAIGON SOUTH Accor D SIX SENSES LATITUDE Six senses D (1,150 rooms) SAIGON CONVENTION AND EXHIBITION Self D Source CBREvietnam CB Richard Ellis Page 14 Approximately only 3,840 rooms will enter the market in the 4-5 star segment, indicating a roughly 11% increase per year. This is still very low compared to other real estate sectors (office and residential) or compared to other countries (Milan has seen an increase of 35% in the past five years).

15 Present and Future Where the market is moving? New Type of Properties are being built or recently completed Boutique Hotels (Corner Thai Văn Lung and Hai Ba`Trưng ) International Hotels in Industrial Areas (SwissBelHotel or Marriot in Dong Nai) Convention Centers (D7) Also New International Brands coming to HCMC Annunced Ibis Novotel Marriot Le Meridien Nikko Planned Holiday Inn Whyndam Golden Tulip Pan Pacific Alila Absolute Best Western Source CBREvietnam CB Richard Ellis Page 15

16 Present and Future Developers/Consumers evolving Are Developers adapting to market changes? In some cases yes. In other cases no. Do they need to change to international standard? In some cases yes. In other cases no. In some areas still 90% is a Vietnamese market (Pleiku-Dalat) In some segment 90% is an International market (4-5 Star City hotel) Changes in the market Past Vietnamese Clients looking for "value" ( high price awarness) International Clients more Demanding Future International Clients looking for value Move from 5 to star Vietnamese Client more Demanding Move from 2-3 to 4-5 star CB Richard Ellis Page 16

17 Present and Future Re branding- Re segmenting This rapid progress has lead to Confused Segmentation/Clients/Categories 4 star pricing more than 5 (in some cases) 3 star pricing more than 4 (in some cases) 3 star offering more facilities than 4 star( in some cases) What will happen? Re-branding Re-segmentation Room Rates still not in defined Service and Facilities developed as addition value What makes a five star in Vietnam..? Service?... Italian marble on the lobby? CB Richard Ellis Page 17

18 The Future Market changing New Reservation systems Agoda.vn ( in Vietnamese!!) - Hotel.com- Wotif.com- Hotel Web sites (two-three-four star) New Marketing systems ( )- Magazine Newsletter from Sofitel Saigon. Saigon times-time Out. Local magazines Furama Resort on Star World Channel New airlines Air Asia investment in VietJet Charter Jets (China, Russia, Singapore and Taiwan) New Information Sharing in and about Vietnam Trip advisor, Travel blogs Consumers evolving more choices- more information more demanding CB Richard Ellis Page 18

19 The Future Where is the market going? Improvement in Service in F&B Existing Hotel Breakfast from Pho only to Pho and Lavazza Improvement F&B alliances Liberty Group with Highland coffee in Pham Ngu Lao. Improvement in facilities From Massage room to S.p.a treatments From VTV1 to Bloomberg television From General Service to Tailored Service (Russian or Korean Menu) Under Construction Improvement in Design- Efficiency Improvement in Management ( is your job to build or to managed hotel???) New Marketing Strategies (example a Pre-opening Process) Plan, plan, plan before you act Who will it be your Client? Who will be your Management Company? What return do you target? What is you exist strategy? CB Richard Ellis Page 19

20 The Future STAY COMPETITIVE BE UNIQUE Differentiate design Improve management Build your Brand Additional Amenities Different Marketing Additional Services Identified Segmentation..Choose the right operator Choose the right brand.plan before you build CB Richard Ellis Page 20

21 CBRE Vietnam Hospitality Services Valuation and Advisory services Market Studies Feasibility Studies Investment Operator Finding Management consultancy Project management CB Richard Ellis Page 21

22 KEY CONTACTS Mauro Gasparotti Manager Hotel Services M Mauro.Gasparotti@cbre.com CB Richard Ellis Page CB Richard Ellis (Vietnam) Co., Ltd.