Increases in intra-Asia travel and domestic travel are positive signs for Vietnam’s hotel industry, and low supply growth in Hanoi could mean that market is poised for strong growth.
GLOBAL REPORT—Hanoi saw similar amounts of attention as Singapore did in 2018 during the second summit between leaders from U.S. and North Korea, when every news outlet reported live from Vietnam’s capital city. This was the second time in a short timespan when Vietnam successfully hosted a politically charged and important meeting after the APEC Summit in the coastal city of Da Nang in November 2017.
The country also continues to get a lot of attention in general, as demand generation and international arrivals have seen very strong growth—the likes of which we have recently only seen in Japan—helped by a variety of factors, including visa deregulation.
To put this into perspective, between 2010 and 2018, international arrivals more than tripled from 5 million to 15.5 million.
It should also be noted that with the fast-paced growth in the Vietnamese economy, domestic tourism is also rapidly shaping demand. Vietnam is estimated to see around 85 million domestic tourists in 2019.
Vietnam sees similar challenges as other emerging Asian markets in terms of productivity, airlift, cost of living, minimum wage and shortage of talent. But so far it has managed to address enough of the critical areas to not only sustain growth but also groom an increasingly positive tourism reputation.
As the growth of international arrivals from outside Asia stayed below 10%, intra-Asian travel into Vietnam grew well over 20% in 2018 with continued share shift from source markets China and South Korea.
Vietnam remains a comparatively affordable destination in many regards, as the rapid tourism growth puts pressure on needed infrastructure development to be able to capitalize fully also on the potential revenue from tourists. The government continues to allocate funds for development both in poorer areas and cities like Hanoi to enable the lofty tourism goals set for 2020 and 2030.
We are now seeing a much more diversified hotel performance story within Vietnam, from Ho Chi Minh City and Cam Ranh in the south to coastal Da Nang up to Hanoi in the north.
With 224 hotels and 17,615 rooms in Hanoi, it remains a market still with smaller hotels, currently seeing almost 60% of all hotels with fewer than 50 rooms and more than 75% of hotels with fewer than 100 rooms.
Additional supply growth was reasonably low from 2015 onwards, and it wasn’t until 18 months ago Hanoi started seeing an increase in rooms. The market had a period of 12 months ending July 2018 where supply grew by over 4%, and this certainly contributed to softer occupancy levels.
During that period, ADR kept trending upward and sustained decent mixed metrics, finishing 2018 with 0.4% RevPAR growth. Similar to 2016, this was a strong result in context of that supply growth but also the fact that 2017 overall produced a thus far historic high RevPAR result just north of 2 million Vietnamese đồng ($86.20).
In terms of seasonality, the city sees two clear peaks in March and November, and the two weeks surrounding the biggest holiday of the year—Tết—during the Lunar New Year generally sees drastic occupancy drops.
With occupancy hovering around 80% for the year in the past three years, it’s been all about consistent rate growth, and particularly during the weekdays where Wednesday nights have increased ADR by 15% in the past 24 months.
While some other markets in Vietnam have seen and will see large pipeline growth, it currently remains moderate in Hanoi with just over 3,000 rooms currently likely to open, and less than 1,000 of those will open in 2019.
There’s a mostly positive outlook for 2019 in terms of RevPAR growth in Hanoi, with balanced supply growth and a strong start to 2019 in Q1. The market has seen improved occupancy during Tết and one of the highest monthly ADR levels ever recorded In February. During the North Korea-U.S. Hanoi Summit (27-28 February), occupancy levels exceeded 95%. Continued strong performance will be driven both by some occupancy during the low season along with continued ADR growth throughout most of the months.
Jesper Palmqvist is the area director for Asia Pacific region at STR. Jan Freitag is SVP of lodging insights at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.