Background
As I embark on my third business trip to Southeast Asia this year, I thought readers of our blog might be interested in my views on the emerging opportunities in this part of the world. Southeast Asia’s hotel industry has grown substantially over the past decade coinciding with a period of significant economic expansion and regulatory reform in many countries. Foreign hotel investors, primarily U.S. and European chains and management companies, achieved a major share of the top end of the market, despite a difficult regulatory and operating environment.
Southeast Asia is a sub-region of Asia. It includes the countries of Mainland Southeast Asia; Vietnam, Laos, Cambodia, Thailand, Myanmar and West Malaysia and the countries of Maritime Southeast Asia; Indonesia, East Malaysia, Singapore, Philippines, Timor-Leste and Brunei as illustrated on the accompanying map.
With the emergence of a burgeoning middle class and the growth in regional and global source markets, the hotel industry is now poised for increased product segmentation across the region. We believe it will continue to attract intense interest as Southeast Asia’s vast developing market continues to present significant investment opportunities for global hotel investors.
Due to a convergence of factors, foreign investors are turning their attention to the emerging hotel and resorts markets in the region. The factors include: growth in domestic tourism, the growth in regional and global source markets, improving transport connections, new low-cost air carriers, new marketing campaigns, relaxation of visa regulations and government support for the expansion of transport infrastructure. While each of these factors could be discussed in some detail, we have narrowed our brief analysis to the growth of domestic and international tourism in the various countries of Southeast Asia.
Based on either econometric or univariate forecasting models¹, we have provided our five-year projections of domestic trips per household, international visitor arrivals, and hotel rooms for each of the Southeast Asian countries.
Growth Prospects
Domestic trips per household have grown in Vietnam, Malaysia and Thailand by CAGR 10.4%, 10.1% and 6% over the period 2010-2017. The number of domestic trips per household for the residents of Malaysia is projected to grow from about 13 in 2017 to about 22 in 2022. While only a small proportion of these domestic trips will require hotel accommodation, the growth in domestic trips per household reflects the potential demand for accommodation for residents of the region. There is a growing middle class across the region and people are starting to embrace travel as a lifestyle choice.
The total number of international visitor arrivals in Southeast Asia has grown from almost 74 million in 2010 to about 122 million in 2017, a CAGR of almost 8%. Thailand, Vietnam, Indonesia and Other Southeast Asia countries have all witnessed visitor arrival growth of CAGR 12%, 11.8%, 11.5% and 11% respectively over the period 2010-2017. International visitor arrivals are projected to grow by CAGR of just over 7% between 2017 and 2022, from 122 million to 175 million.
The growth in international visitor arrivals in the region continues to have a significant impact on the growth of hotel rooms. The number of hotel rooms has grown from about 1.5 million in 2010 to 2.6 million in 2017, a CAGR of just over 8%. This compares with the number of hotel rooms in the U.S. which has grown from 4.7 million in 2010 to 5.1 million in 2017, a CAGR of 1.2%.
Supported by growth in inbound and domestic travel, we expect the number of hotel rooms in Southeast Asia to increase strongly during the forecast period. By 2022, we expect the number of hotel rooms to reach about 3.7 million up from 2.6 million in 2017, a CAGR of over 7%. Over the same period we project that the number of hotel rooms in the U.S. will grow from 5.1 million to 5.5 million, a CAGR of 1.8%.
Hotel Construction Pipeline
Southeast Asia’s rapidly growing tourism sector has attracted the attention of both domestic and international hotel groups and investors and the region boasts a strong pipeline of new developments. According to Lodging Econometrics, Indonesia has the largest construction pipeline in the region with 394 hotel projects and 66,154 guestrooms. Malaysia has 137 hotels and 36,244 guestrooms in the construction pipeline. Thailand has 134 hotel projects and 31,964 guestrooms in the region’s pipeline.
The Indonesian capital of Jakarta has the largest hotel construction pipeline in terms of cities within the region with 101 hotel projects and 19,010 guestrooms. According to STR Global, Jakarta has 6,823 rooms in construction, which represents 12.1% of existing supply. Kuala Lumpur, the capital of Malaysia, has 58 hotel projects with 14,834 guestrooms in the construction pipeline, while Bangkok, the capital of Thailand, has 52 hotel projects and 11,805 guestrooms in the construction pipeline at April 2018.
The 10 Asean members boast of some of the world’s fastest expanding economies like the Philippines and Vietnam, with growth rates of more than 6 percent. The World Economic Forum predicts that with a combined population of over 620 million and an economy of $2.6 trillion, the investment potential in the region is huge and by 2020, it will have the world’s fifth largest economy.
With over 122 million international arrivals in 2017, and an average growth of almost 8%, Southeast Asia’s travel and tourism industry has incredible potential for hotel development and investment. Prospects for hotel development in the region remain very positive through the next decade due to strong momentum behind international and domestic demand. New entrants into the market can benefit from lessons learned by companies already operating in the region.
This is an exciting time for Hotel Investment Strategies and the opportunities presented in Southeast Asia for both the firm and its clients. We have recently assisted a number of investors identify, research and acquire hotel/resort properties in the region. We have also been appointed to assess and evaluate future expansion of several brands in the region. If you are evaluating an investment opportunity or exploring or likely to explore new hospitality markets in Southeast Asia, please call me to discuss how we can help you. With the proper planning, research and entry strategy, we can help your company to reach its growth objectives.
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¹ A wide variety of statistical forecasting techniques have been used, ranging from very simple to very sophisticated. We use forecasting methodologies that have been proven to be the most appropriate for business forecasting – simple moving averages, curve fitting, Croston’s intermittent demand model, exponential smoothing, Box-Jenkins, Bass diffusion model, forecasting by analogy, dynamic regression, event models and multiple-level forecasting.