World tourism is on track to rebound with international tourist arrivals, reaching 80% of pre-pandemic levels in the first quarter of this year, according to the UN World Tourism Organization (UNWTO).
That momentum, however, has yet to lever up Asia Pacific (APAC), the only region lagging with 54% of total international tourist arrivals in the quarter as compared to 2019.
The absence of Chinese tourists, cautious border control in Asian nations, not to mention concerns of health, cost, and weather among travelers are some of the key factors that have impaired the recovery of Asian tourism throughout 2022. The road to recovery of tourism across Asia Pacific is poised to accelerate this year as most destinations, particularly China, have re-opened.
Colliers Hospitality Insights of Q1/2023 projected that 2023 would continue to witness a recovery in travel, with hotel demand across the APAC region continuing to abound and improved indexes of room occupancy, average daily rate (ADR), and revenue per available room (RevPAR).
Where is Vietnam in regional tourism?
‘Revenge travel’ (a media buzzword originated in 2021 when the world began to reopen, and people decided to make up for lost time) combined with personal savings during the lockdown in 2021 drove an upsurge in travel among Vietnamese in 2022, with 101.3 million domestic arrivals, according to the Vietnam National Administration of Tourism, or VNAT.
Popular destinations such as Phu Quoc Island, Dalat, Sapa, Danang, and Halong were the most desired places to visit last year. But spending per domestic tourist pales. Statistics from VNAT in 2022 revealed a Vietnamese tourist spends $51 per day (about VND1.2 million) and has a shorter length of stay, 3.62 days on average.
Although international flights resumed in March 2022, Vietnam was among the markets with the lowest number of foreign tourists in Southeast Asia last year. International arrivals in 2022 were five times lower than that of 2019, though foreign tourists spent more than twice, and the average length of stay doubled that of a domestic tourist.
In the first three months of 2023, the number of foreign arrivals in Vietnam stood at 2.7 million, one-third of the nation’s target of 8 million arrivals, and less than half of Thailand’s 6.15 million arrivals. Not to mention imbalanced inbound and outbound visitors as more Vietnamese choose to travel abroad thanks to lower airfare and convenience.
Lacking Chinese tourists is not the only reason. The fact that Vietnam's tourism is not as thriving as neighboring countries had been a topic of much debate before the pandemic. In 2019, Vietnam had 10% returning tourists, much lower than that of Thailand (82%) and Singapore (89%). The figure even dropped to 5% in 2022.
Besides the over-dependence on some tourist-generating regions (Russia and China, for example), the roots lie in visa policies and long-existing bottlenecks of the industry, namely the asynchronous transport and tourism infrastructure, not to mention a lack of varieties, distinctive positioning, well-executed destination marketing overseas, and labor shortage post-pandemic.
Promising prospects
However, potentials loom large in the mid to long term. At a national level, Vietnam has set a target to fully recover its tourism by 2025, with 18 million international tourists in a total of 134 million tourists. By 2030, the country aims for 195 million tourists, including 35 million foreign tourists, with a diversification of source markets namely India, the Middle East, European countries, Australia, New Zealand, Canada, and the US. Visa relaxations were also proposed, potentially to extend the visa exemption up to 90-day stay for e-visa and 45 days for a unilateral visa, issuing e-visas to all countries to relax entry and stay requirements for foreigners.
There are also multiple discussions in the country to improve the quality of tourism, as well as developing new models such as wellness tourism, eco-tourism, medical tourism, MICE, and bleisure (business + leisure). Vietnam has all it needs for tourist attraction thanks to its natural beautiful landscape, cultural richness, and gastronomic delights from street food to modern Vietnamese cuisine.
“The key is quality and standardization of tourism services without losing the authenticity of Vietnam to cater to the new travel tastes of an increasingly affluent population, both domestically and internationally,” said Morgan Ulaganathan, head of asset services & hospitality advisory, Colliers (Vietnam).
What now for Vietnam hospitality real estate?
For real estate investors, hospitality properties have long been considered a lucrative and long-term profitable investment. “Vietnam has good fundamentals for developing hospitality properties. There is the rise of the middle class, increasing accessibility to travel thanks to improved infrastructure, the country’s openness to international trade which drives business travel, events, and conferences, etc. Investing in hospitality real estate is a smart bet,” said David Jackson, CEO of Colliers (Vietnam).
Though the tourism recovery in Vietnam lags behind other Asian markets and uncertainties remain due to the economic slowdown, not to mention the hospitality real estate market freeze, pockets of opportunities are present in Vietnam.
In 2019, occupancy rates in hospitality establishments (hotels, resorts and villas) reached 52%, saying on average, each of the 30,000 accommodation establishments was filled with more than half of the rooms. Thanks to domestic travelers, in 2022, this figure improved most clearly in coastal locations namely Ho Tram, Danang, Nha Trang and Phu Quoc. Data from Google shows search demand with the keywords of Dalat, Phu Quoc, Nha Trang, Vung Tau, Phan Thiet, and Hoi An increased by 75% year-on-year.
Over the past 10 years, hotel supply in Vietnam has been growing three folds and roughly 100 new hotel projects are in the pipeline for the next three years. Mid-scale and luxury room supply grew the strongest, up 6.7 times from 2009 to 2022, while villas and resort shophouses increased 20% and 34% respectively in 2022 year-on-year. The number of international hotel brands is expected to double in the next three years, from 127 in 2022 to 261 projects in 2025.
“There is an increasing market concentration, where domestic players with the dominated ownership of hospitality property collaborate with reputable international hotel brands to standardize and raise the bar of quality for hotel services, as well as the value of hospitality properties,” Jackson said.
M&A and collaboration activities, though slowing down last year, are expected to be a deal-making rush in the coming quarters. With capital waiting to be deployed and current favorable valuations, foreign investment funds are playing a smart bet to expand their market shares before hotel revenues meet their full potential with the recovery.
For instance, agreements were announced by Sun Group and IHG; Accor, Ennismore, and TNR; and BRG and Hilton. Recently, the issuance of Decree 10/2023/ND-CP on ownership certificates with a term for properties built on commercial and service land set initial conditions for the revival of the condotel, office-tel, resort villas across Vietnam, promising growth spurt in the years to come.
“For now, smart moves should include improving EBITDA, IRR, Cap rates, etc. with minimal investment and focusing on superior marketing, revenue management, and distribution,” said Ulaganathan. He also added that the development of hospitality real estate projects should weigh in ESG ( environmental, social, and governance) to ensure Vietnam’s long-term global tourism competitiveness. “And last but not least, targeting the right mix of domestic and international tourists is critical to optimize occupancy and room rates.”