Vietnam Hotel MarketView

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1 Vietnam Hotel MarketView CBRE Global Research and Consulting VN Q2 GDP 5.3% y-o-y HCMC Q2 GDP 8.7% y-o-y HANOI Q2 GDP 7.4% y-o-y VN-INDEX 20.1% y-o-y LOCAL GOLD PRICE y-o-y VN EXPORT 16.2% y-o-y HOTEL PERFORMANCE MAINTAINED ITS MOMENTUM DUE TO STEADY GROWTH IN TOURIST ARRIVALS 1 Hot Topics On May 1st, China deployed the Haiyang Shiyou-981 offshore drilling rig in the East Vietnam Sea, in a location 70 miles inside Vietnam s Exclusive Economic Zone. The tension with China caused a certain impact on the number of international arrivals, especially Chinese tourists and tourists from Chinese speaking countries. Chinese tourists comprise the largest proportion of foreign tourist arrivals in Viet Nam. In June 2014, number of Chinese arrivals to Vietnam was 136,724 persons, a decrease by 29.5% m-o-m. Even though this June figure still increased by 5.5% y-o-y, the lowest y-o-y growth since the beginning of Ministry of Finance has issued Circular No. 72/2014/TT-BTC on value added tax refund for purchases made in Vietnam by foreigners and overseas Vietnamese when leaving the country. From 1 July 2014, the VAT refund is officially implemented in 7 border gates including Noi Bai Int l Airport, Da Nang Int l Airport & Int l Seaport, Cam Ranh Int l Airport, Tan Son Nhat Int l Airport, Nha Trang Int l Seaport and Khanh Hoi Int l Seaport. The VAT refund is applied for valid invoices at one store in one day with the total cost at VND2 million as minimum and the amount equals to 85% of VAT amount of goods. Hanoi record highest RevPAR growth in 5-star hotel segment In, Vietnam hotels saw positive performance generally. However, growth is patchy across the markets and segmentations. Hanoi s 5- star hotel segment experienced the largest growth rate of 32.4% for the review quarter, compared to the previous period. Hanoi s solid performance continued to be driven by branded top-tier hotels including the newly-opened JW Marriott Hotel. Ho Chi Minh City (HCMC) and Da Nang saw declines in RevPAR due to softening of both occupancies and ADRs. Tourist arrivals maintain a steady growth International visitors to Viet Nam in the first 6 months of 2014 estimated 4,287,885 arrivals, increasing 21.11% over the same period last year. Chart 1: Vietnam International Visitor Arrival, Most of source markets recorded positive growth in the first 6 months of The strongest growth came from emerging markets like China (+37.45%), Laos (+38.83%), Russia (+25.95%). The strong growth in visitor arrivals witnessed during H reflects the resilience of the tourism and travel industry in Asia Pacific as the global economy continues to recover. The ongoing growth and rising incomes of the Asian middle class is also contributing towards an increase in demand for international travel. Overall quality to improve albeit concerns of oversupply A large pipeline, an estimated 8,000 top-tier hotel rooms, will be completed in the three cities over the next two to three years. However, outlook for the hotel market remain positive given the anticipated regional and local economic recovery Source: Vietnam Administration of Tourism,.

2 HO CHI MINH CITY HOTELS 5-STAR HOTELS WEAKENED WHILE 4-STAR OUTPERFORMED Table 1: HCMC Hotel Snapshot, 5-STAR 4-STAR 3-STAR Number of Hotels Total supply (rooms) 5,146 2,967 6,414 New supply (rooms) Average Occupancy Rate (%) 62.9% 69.8% 61.7% q-o-q change (percentage points) -4.5 pp -2.9 pp -2.1 pp y-o-y change (percentage points) -1.5 pp 9.5 pp 0.5 pp Average Daily Rate () $120.9 $70.3 $35.6 q-o-q change (%) -1.6% -2.3% -7.2% y-o-y change (%) 0.4% 0.7% -15.7% RevPAR () $76.1 $49.1 $21.9 q-o-q change (%) -8.1% -6.2% -10.2% y-o-y change (%) % -15. Including all traceable 3-5 star hotels (ranked & not yet ranked by VNAT) with capacity of above 40 rooms/hotel Average daily rates (ADR) are quoted exclusive of service charge and VAT Source: CBRE Research, Vietnam Administration of Tourism,. During HCMC welcomed 830,000 foreign arrivals, a decrease of 33.4% q-o-q and 1.5% y-o-y. As the second quarter is the start of the low season coupled with the threat of tension with China, the occupancy rate decreased across all hotel segments compared to the previous quarter. The five-star hotel segment witnessed the largest occupancy rate drop with more than half of all five-star hotels had a lower occupancy rate on yearly basis. However, the four-star segment still saw an increase in bookings compared to the same period last year. All hotels achieving the highest occupancy rates in belonged to this segment thanks to good quality services, more affordable prices and attractive promotions applied. Due to the anticipated reduction in the number of tourist arrivals during the low season, hoteliers softened their room rates with more attractive promotion packages to push up the booking rate. Three-star hotels saw the largest ADR reduction as this segment is frequently owned and managed by private companies or individuals. Three-star hoteliers usually have a greater ability to respond quickly to the needs of the market when setting daily room rates compared to four-and five-star hotels. Chart 2: HCMC Hotel, Average Daily Rate $100 $50 Chart 3: HCMC Hotel, Average Occupancy Rate The reduction in both occupancy rate and room rate has led to a reduction in RevPAR of all hotel segments on q-o-q basis and of the five-and three-star segments on a y-o-y basis. The four-star hotel segment is the only one recording a RevPAR y-o-y improvement in thanks to flexible pricing strategies and continuously increasing high quality services. Following the meeting held in June 2014 regarding the city s tourism development strategy, a report was issued in which the city will keep improving the security and safety for tourists. The report also listed target markets to focus on in the future. These include Northeast Asia (Japan, Korea), Southeast Asia (Singapore, Malaysia, Indonesia), Western Europe (UK, France, Germany), the US, Russia, Australia, the Middle East and India. At the same time, domestic tourism will also be promoted through a stimulus program SCPS Hotel (59-61 Pasteur Street) is approaching to completion. When completed on October 2014 as planned, SCPC Hotel will bring to the market an additional 180 fourstar hotel rooms. Regarding Eden Hotel in District 1, after a period of planning to convert this hotel into office for lease, the developer has decided to maintain the hotel component as the initial plan. The ground-breaking ceremony was held in July When completed, the project will bring to the market 300 five-star hotel rooms. MGallery Hotel and Viettel Hotel have maintained good construction progress during the review quarter. Up to 2016, approximately 9 new top-tier hotels are expected, providing 1,908 additional hotel rooms to the market. 2

3 HANOI HOTELS 5-STAR HOTELS OUTPERFORMED DESPITE LOW SEASON Vietnam Hotel MarketView During the review quarter, no new stock entered the market. However, five projects received official rankings including Hilton Garden Inn (4-star, Phan Chu Trinh), Lotus 2 (3-star, Nguyen Khanh Toan), Authentic (3-star, Ly Thai To), Hoa Nam (3-star, Ung Hoa) and Xich Lo Vang (Golden Pedicab, 3-star, Ngo Tram). Accummulated stock stood at 9,623 rooms, up 1.7% q-o-q. The traditional low season has brought down average occupancy in all segments by 5.2 pps on a quarterly basis. However, on an annual basis, 4-5 star hotels recorded upward performance with fair to strong increases in occupancy rates and RevPARs. In contrast, 3-star sector continued to struggle with diminished occupancy, ADR, and RevPAR. Market-wide occupancy was 59.4%, down 5.2 pps q-o-q and up 2.3 pps y-o-y. Only 5-star segment saw average ADR sharply increase, of 17% y-o-y. Notably, despite being operational for the past two quarters, JW Marriott s ADR ranked the third highest in the category, just behind Sofitel Legend Metropole Hanoi and Hilton Hanoi Opera who have established themselves as the leaders in the segment. Table 2: Hanoi Hotel Snapshot, 5-STAR 4-STAR 3-STAR Number of Hotels Total supply (rooms) 4,218 2,181 3,078 New supply (rooms) Average Occupancy Rate (%) 68.7% 57.7% 54. q-o-q change (percentage point) y-o-y change (percentage point) Average Daily Rate () * $115.2 $57.5 $32.1 q-o-q change (%) 8.8% -5.6% -5.6% y-o-y change (%) % -3.8% RevPAR () $79.1 $33.2 $17.3 q-o-q change (%) 6.4% -13.1% -8.7% y-o-y change (%) 32.4% 3.8% -5.4% * Average daily rates (ADR) are quoted exclusive of service charge and VAT. Source: CBRE Research, Vietnam Administration of Tourism,. On the demand side, Hanoi welcomed 1.1 million international tourist arrivals in the first six months of 2014, representing an increase of 18.4% y-o-y. Domestic arrivals reached 4.8 million, up 3.2% y-o-y. The two Cessna Grand Caravan EX seaplanes are expected to arrive at the Noi Bai Int l Airport in August 2014 and operate on Hanoi Ha Long route from September Seaplanes will help reduce travel time between Hanoi Ha Long from 3 or 4 hours to 30 minutes. After Hanoi - Ha Long route, the airline will operate air routes between HCMC and tourism destinations such as Khanh Hoa, Binh Thuan, Can Tho, An Giang, Con Dao, and Phu Quoc. This will help diversify transport choices for both leisure and business travelers, especially foreign ones. The cost is announced at around US$250 per passenger per one way. Chart 4: Hanoi Hotel, Average Daily Rate $180 $120 $90 $60 $30 3 Hanoi was the cheapest in the TripIndex Cities by TripAdvisor, and the Sofitel Legend Metropole Hanoi ranked seventh in the Top City Hotels in Asia and 66th in the Top 100 Hotels Overall by Travel+Leisure in In the second half of 2014, two five-star hotels are expected to open in Hanoi, including Lotte Hotel (318 keys) and a possible 5-star hotel in Keangnam Landmark 72 (359 keys). In the next three to five years, the market will see an increase in supply of over 4,200 rooms (the majority of which are 4 and 5-star hotels), raising the risk of oversupply where competition within each and between the different segments will be tougher than that in We also expect the market to favour customers with more choices of accommodation and promotion packages offered for hotel guests, especially by new entrants. Chart 5: Hanoi Hotel, Average Occupancy Rate 6

4 DA NANG HOTELS BIG IMPROVEMENT IN 4-STAR HOTEL PERFORMANCE 4 Table 3: Da Nang Hotel Snapshot, Beachfront hotel 5 star 4 star Beachfront hotel Number of Hotels Cityhotel Cityhotel Total supply (rooms) 1, ,585 New supply (rooms) Average Occupancy Rate (%) 50.8% 48.5% 55.2% 49.5% q-o-q change (percentage point) y-o-y change (percentage point) Average Daily Rate () * $170.1 $46.2 $85.6 $53.4 q-o-q change (%) 4.7% -4.9% 18.8% 5.9% y-o-y change (%) % 18.1% -16.4% RevPAR () $86.4 $22.4 $45.7 $24.4 q-o-q change (%) -11.9% 21.4% 54.8% 17.5% y-o-y change (%) -5.4% 9.1% 19.8% 25.4% * Average daily rates (ADR) are quoted exclusive of service charge and VAT. Source: CBRE Research, Vietnam Administration of Tourism,. Chart 6: Da Nang Hotel, Average daily rate $180 $120 $90 $60 $30 Chart 7: Da Nang Hotel, Average occupancy rate star - Beachfront 5 star - City Hotel 4 star - Beachfront 4 star - City Hotel 5 star - Beachfront 5 star - City Hotel 4 star - Beachfront 4 star - City Hotel In line with the wider Vietnam hospitality market, Da Nang also experienced some impact from East Sea tensions on hotel/resort performance and on the total number of international arrivals to the city. In, Da Nang welcomed 1,035,764 tourist arrivals, of which international tourists accounted for 177,616. This represented an increase of 11.4% y-o-y for the domestic sector but a slight reduction of 2. y-o-y for the international sector. However, compared to 1H2013, both sectors showed an upward trend of 17% y-o-y. The recent East Sea tension resulted in the cancelation of 14 out of 15 charter flights between China and Da Nang city and a notable decline in the number of Chinese tourists to Da Nang city. 50,000 Chinese arrivals were recorded in 1H2014 compared to 68,226 Chinese arrivals in 1H2013, a decrease of 26.7%. However, the number of visitors arriving from other countries is steadily improving. Korean Air has increased from 4 flights/week (2013) to 7 flights/week (2014) and a direct flight between Naritaand Da Nang opened on 16th July with 4 flights per week. In an additional piece of good news, it has been announced that direct flights from Kuala Lumpur to Da Nang will resume at the end of August. On a y-o-y comparison, the average RevPar at beachfront five and four-star properties saw a drop of 5.4% and 19.8% respectively due to the decline in occupancy rates. In contrast, the growth of local tourists together with the good reputation of new city properties increased occupancy rates at most city hotels in both a q-o-q and a y-o-y basis. The average RevPar at five and four-star city hotels increased by 9.1% y-o-y and 25.4% y-o-y, respectively. In, there were six new hotels/resorts, adding a total of 507 top-tier rooms and 79 additional rooms from one existing resort, Olalani Resort & Condotel. Of particular note is the opening of Premier Village Da Nang resort managed by Accor. New openings in increased total supply to 65 top-tier hotels/resorts. The fast growth of city developments in recent years helped this segment dominates the market. However, in the near future beachfront hotels will come to lead the market. In 2014 and 2015 approximately 1,698 new beachfront hotel rooms will be launched compared with approximately 652 city hotel rooms. Most of these new openings will be from three and four-star hotels. There will also be new rooms from five-star hotels, but due to a longer construction process these will not be ready until 2016 or Positive signals in international flight routes promise an improvement in international arrivals to Da Nang that could make up for the loss of Chinese visitors. To some extent, losing Chinese guests in recent months will be an opportunity for the Da Nang hospitality market to re-focus on other tourist markets in the region and to strengthen links with traditional markets such as the EU, US and Australia to make the city s hospitality market more diversified. 4

5 Figure 1: Projects to be launched in the next quarter 5-star Melia Da Nang Hotel, Da Nang CONTACTS 4-star Liberty Central - SCPC Hotel, HCMC 5-star Lotte Hotel, Hanoi For more information about this Vietnam Hotel MarketView, please contact: APAC Research Henry Chin Head of Research, Asia Pacific CBRE 4/F Three Exchange Square 8 Connaught Place, Central, Hong Kong t: e: henry.chin@cbre.com.hk Vietnam Research Dung Duong Associate Director CBRE Vietnam Unit 1201, Melinh Point Tower, 2 Ngo Duc Ke Street, District 1 t: e: dung.duong@cbre.com + FOLLOW US Global Research and Consulting This report was prepared by the CBRE Vietnam Research Team, which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 5 Disclaimer All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only, exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorised publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.