Vietnam’s rapid growth as a tourism destination has placed it on the investor radar as a key hospitality investment destination, the country has boosted its infrastructure to lure more foreign investors from Singapore, Japan, South Korea, Thailand and Malaysia.

With government initiatives and the commitments by the private sector into infrastructure and transport linkages, hotel investors are keen to capitalise on this growth. Vietnam invested 5.8 per cent of its GDP in infrastructural developments �" the highest in Southeast Asia �" according to the Asian Development Bank.

More than 10 million international tourists arrived in Vietnam in 2016, a 26 per cent increase from 2015. Vietnam National Administration of Tourism projects 20 million visitors by 2020. Chinese arrivals saw massive growth in 2016, up over 50 per cent.

The dramatic rise in arrivals is a result of Vietnam’s significant infrastructure investment. This investment will lead to 2,000km of new highways, metro systems in Hanoi and Ho Chi Minh City, and a slew of airport expansions and new builds. As part of this transport master plan, both private and state-owned airlines are also planning to expand and improve their fleets, which will drive economic growth and the tourism industry.

“2016 saw record levels of hotel transactions, with the dollar value of deals completed during the year representing 83 per cent of those deals completed in Thailand, a market which is often perceived to be significantly larger and more liquid,” says Adam Bury, Senior Vice President, Investment Sales, Asia Pacific, Hotels & Hospitality Group at JLL.

China remains the largest source market for Vietnam, with 51.4 per cent year-on-year growth as of 2016, followed by South Korea (38.7 per cent year-on-year) and Japan (10.3 per cent year-on-year). Following visa-free travel and direct flights from Russia, the number of Russian visitors has rebounded in Vietnam, similar to Phuket, with arrivals increasing over 60 per cent in April.

“Vietnam is shedding its image as a destination which tourists only visit once, with the food scene, golf and casinos being just some of the reasons for repeat visits. The investments made in infrastructure and transport has opened up an array of coastal destinations beyond the long-standing hotspots of Danang-Hoi An and Nha Trang-Cam Ranh for investors to target,” adds Mr Bury.

Popular and diversified destinations in Vietnam

With the recent rebranding of Hoi An’s The Nam Hai, now under Four Seasons management, and a second Four Seasons in the early stages of development in Hanoi, it is clear that many large hotel operators are keen to capture a slice of Vietnam’s growing market.

Frank Sorgiovanni, Head of Research, Asia Pacific at JLL Hotels and Hospitality Group, says: “We have seen an increasing number of internationally branded hotels open in Vietnam over the past 24 months, and expect further diversification of hotel management companies and brands in the market.”

“As observed in other comparable Southeast Asian markets, including Thailand and Indonesia, we expect growth beyond international hotel brands. Homegrown hotel brands are likely to come to the forefront, particularly catering to domestic travelers. We’re seeing domestic hotel brands being established in Ho Chi Minh City and Hanoi in the budget and mid-scale segments, and expect these chains to grow nationwide at a rapid pace.”

Stephen Wyatt, Country Head at JLL Vietnam, adds: “Vietnam’s hospitality industry has progressed rapidly over recent years. We have observed considerable corporate and business demand within hotels across Ho Chi Minh City and Hanoi as multinational manufacturers have entered Vietnam and relocated staff from other Asian markets on a temporary or semi-permanent basis.”

“Hotel performance, particularly in Hanoi, has improved off the back of the massive industrial investment that has surrounded the city. We’re seeing similar trends in Ho Chi Minh City, which is also benefiting from its position as the financial hub of the country. The medium-term fundamentals continue to look good for investors.”

For more information, download the report “Vietnam: Spotlight on the Accommodation & Tourism Industry” here.