In the first half of 2024, the number of international tourists visiting Viet Nam reached 8.8 million, slightly surpassing pre-COVID-19 levels from 2019. Chinese tourists, who accounted for one-third of Viet Nam’s total foreign tourist arrivals before the global pandemic, reclaimed their position as the largest source of visitors as of May this year. Overall, the market has fully recovered on the demand side.

However, the hotel industry still lags, primarily due to low occupancy rates, despite room rates approaching 2019 levels in most areas. Only some hotels in HCMC and Ha Noi have surpassed these levels. Compared to neighbouring countries, the rate increase has been modest. Low occupancy is attributed to slow recoveries in key markets like Russia and China, compounded by increased supply in coastal destinations since 2020. Many projects delayed during the tourism boom are now coming online. Savills Hotels notes a significant addition of 45,000 midscale to luxury rooms from 2020 to June 2024, marking a nearly 25% increase in supply.

Regarding market dynamics in Vietnam, Mauro Gasparotti, Director of Savills Hotels and founder of HoSkar Night events, remarked, “Demand recovery is nearly complete, yet the market faces challenges ranging from oversupply in certain destinations—largely due to large-scale projects now operational—to undersupply in places like HCMC, necessitating new and improved products to remain competitive regionally.

Many developers seized opportunities during the tourism boom but often neglected comprehensive project planning and execution. Consequently, they relied heavily on tourism growth instead of meeting market demand with suitable products. This oversight has left several condotel properties in coastal areas vulnerable, unable to progress amidst shifting market conditions. This reality compels developers to reassess investments; some projects have stalled entirely.

We observe a trend towards rebranding and repositioning, with hotels and condotels enhancing competitiveness and market share through brand changes, upgraded F&B offerings, and other strategic adjustments.”

In recent years, the presence of international hotel brands in Viet Nam has significantly increased. In 2013, less than 25% of hotels in the country were affiliated with international brands. This figure is projected to rise to 40% within the next three years. Especially after the pandemic period, this trend is evident, with hotels undergoing either brand conversions or upgrades.”

The uncertainty of recent market conditions has posed challenges for hoteliers in maintaining typical profitability levels. Larger-scale operations are particularly vulnerable, underscoring the increasing importance of enhancing operational efficiency for hotels and resorts, especially amidst rising costs of qualified staff.

Mauro noted, “We will observe two distinct trends. Firstly, a rise in interest towards lifestyle brands emphasizing strong F&B offerings, particularly within mixed-use buildings. Examples include the introduction of brands like Nobu to locations such as Danang and HCMC, known for their excellent F&B DNA.”

“On the other hand, there's a growing preference for properties offering limited or no F&B services—known as focused service hotels. These cater well to the rapidly expanding mid-tier market, a concept highly popular in other destinations but still emerging in Vietnam.”

Uyen Nguyen, Head of Consultancy at Savills Hotels remarked, “For properties located in mature, bustling markets or surrounded by diverse amenities and F&B options, a leaner hotel model focusing solely on accommodation may be considered. Such hotels rely on the surrounding neighbourhood to provide guests with a wide selection of food and beverages. 

We have observed the expansion of the focused-service model across various locations in Vietnam, particularly in dynamic cities attracting diverse business and leisure guests such as HCMC, Nha Trang, and Da Nang. However, this model constitutes a smaller proportion compared to neighbouring Thailand.” 

She continued, “Among the top five international hotel chains, the number of midscale focused-service properties in Vietnam is only one-third of that in Thailand. In Thailand, nearly 60% of these properties are concentrated in Bangkok, whereas in Ho Chi Minh City, only 27% are located.” 

Uyen added, “We anticipate the focused-service model to gain more prominence in Ho Chi Minh City, akin to Bangkok, due to the city's diverse mix of business and leisure travellers and its evolving market dynamics.” 

Jenny Milos, Vice President, Focused Service & All Suites Brand Management, APAC, at Hilton, said, “A burgeoning middle-class in Asia Pacific has driven sustained demand for intra-regional travel to countries such as Vietnam, propelling our focused service brands, particularly Hilton Garden Inn. There is significant interest from owners in the brand, driven by its efficient prototype, tailored offerings, and flexible agreement options, positioning it as a substantial accelerator of our growth within APAC. We are on track to more double our presence of Hilton Garden Inn properties in Vietnam in the coming years.” 

Understanding market conditions, site characteristics, and industry trends is essential in project planning to define the optimal business model that aligns the developer’s vision and resources with market demands. Successful developers must engage in the appropriate execution process from the outset to ensure project success. 

Looking ahead, the recovery of the Chinese market, along with the impact of the new visa policy and stimulus programs, is poised to accelerate the hospitality sector’s rebound. The Vietnamese hospitality market has been steadily evolving in terms of product quality and diversification, catering to the various needs of both the leisure and business markets. Industry players aspire to enrich and fulfil guests' needs with compelling experiences. By working together, stakeholders can ensure a bright and prosperous future for Viet Nam's hospitality industry.