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Room to move

Released at: 09:27, 28/04/2015

Room to move

Hotel performance in Ho Chi Minh City offers space for hospitality-related investment from local and international players.

Mr. Mauro Gasparotti, Executive Director of Alternaty

The number of five-star hotels in Ho Chi Minh City increased from 1990 to 2014 to 16 upscale properties, effectively offering 5,146 rooms in total, and has grown a remarkable 30 per cent since 2007. New upscale hotels include Tan Son Nhat Saigon, Novotel, which came on line in 2013, and Pullman Saigon Hotel, which officially opened last year, while a number of two- and three-star family hotels have also opened, albeit at a lower rate compared to previous years due to challenging financing for single private investors over the last two years. 2015 will be an interesting year for developers, investors, hotel operators and hotel consultants alike, with solid construction rates to take shape again after slowing down for a few years. 

Market of international brands

Most of the upscale hotels in Ho Chi Minh City are operated by international operators, accounting for some 75 per cent of the total. The remainder are 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 engaged. Ibis in District 7 is the only mid-scale property in the city with an international brand, although other Ibis and Holiday Inn properties are currently being planned in more centralized locations. 

2013 to 2014 saw only four new hotels open in the upscale market, resulting in a total of 933 additional rooms. 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. The 636 rooms planned for release will account for a 30 per cent increase. Additional increases in supply in the same category will be made when the Union Square Hotel (formerly Vincom A), opens in 2016. The One and the Lavenue projects, expected to open in 2017 and 2018, respectively, are now building foundations or conducting site clearance. The expansion of the Majestic Hotel and the redevelopment of Satra Tax Center are also expected to be completed in the next four years. The Viettel project, located on Cach Mang Thang 8 Street, which includes approximately 424 rooms, is expected to be completed in 2016 and will be positioned as an upscale property managed under a well-known international brand. 

Hotel performance

Ho Chi Minh City’s upscale market can be clearly divided into three separate segments: the Luxury segment, with the Hyatt leading the way, 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 a clear gap between the different groups, with the Luxury segment leading the market at an average daily rate (ADR) of $170, followed by the Upper Upscale segment, at approximately $118, while the Upscale segment has an average ADR of $90; almost half of the superior five-star offerings. This is because the upscale five-star group is composed of properties that are generally older and less attractive due to their location, management, or orientation towards the local market or group travelers. Upscale five-star properties are usually located outside the central districts and target large-group travelers, transits, aircrew members, or management-level local business travelers. The overall ADR has been relatively stable in each category for the last two years, as signs of a 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 in rates, by increasing the room count in the higher category the overall average market rate will increase on its own. 

Looking back on 2014, it was expected to be a particularly strong year for the five-star market in Ho Chi Minh City, with the first quarter providing several positive signs for strong performance throughout the whole year. However, the political tensions between Vietnam and China in the first and second quarters negatively affected guest arrivals, with several cancellations from groups and in the MICE business that were felt at different levels at 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 levels in what could have been a remarkable year for the majority of Ho Chi Minh City properties.

The overall hotel market has shown significant signs of recovery since 2012, through stable growth to a level above 60 per cent. The Luxury segment led the market in 2013 and 2014, with the highest occupancy among all segments, at 71 per cent. However, there has been a notable difference between the highest-priced option and the rest of the set, where hotels trading at premium rates achieve a lower volume of occupancy, at approximately 65 per cent. The Intercontinental Hotel and the Sheraton Hotel are among the best performing properties in the market, with annual occupancies registered above 75 per cent. A stronger level of competition is felt in the Upscale segment, with 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 created fierce competition in the Upscale segment, resulting in lower rates and lower occupancy levels, which are expected to be at 66 per cent for 2014. That said, some of the most recently opened international four-star properties, when located in more central streets, are reaching remarkable levels of occupancy, at above 75 per cent.

With regard to long-term guests, demand in the serviced apartment market also seems strong in Ho Chi Minh City, with average market occupancy at 84 per cent. Intercontinental and Somerset in District 1 are leading the market, but a number of smaller, unbranded properties are also running at full occupancy, especially in residential locations like District 2.  

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 expected to close down entire floors or businesses. This includes Park Hyatt, Sheraton, Continental and the New World Hotel, along with the ongoing work on the Caravelle rooms. No committed schedule of renovations has been announced and some properties may delay the work until next year.


Several opportunities are available in the hospitality business in Ho Chi Minh City, ranging from low-cost, high-volume international hostel models to the larger, mixed-use complexes, which include 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 international standard, a segment still not fully explored, with the majority of future branded supply to be concentrated only towards the 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 and District 7, where the demand for long-term rental is still very high. 

As a final thought, we believe that Vietnam’s tourism market has incredible potential for further strong growth, and Ho Chi Minh City has been the leading city for business travelers and MICE, with remarkable hotel performances. Overall, when compared to other Asian destinations, the total room count is modest, with very attractive upside return potential.

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