Nov 24, 2012

Hotel boom in Yangon

Yangon, the biggest commercial city of Myanmar, now hosts approximately 8,000 hotel rooms but the number could rise by 36.7 per cent per annum during 2012-2016.

A new report of Jones Lang LaSalle, a property consultant, shows that due to supply shortage against the large number of visitors to the reopened country, average room rate (ADR) has been growing by 350 per cent from 2007 to 2012. New supply growth is based on the assumption that all projects which are underway or in the pipeline are completed.

There has been tremendous growth in visitors to Yangon in the past year as Myanmar began economic and social reforms, and as a result, hotels are now experiencing significant growth in demand from both corporate and leisure travellers. However, major international brands are relatively scarce in Yangon due to the economic sanctions that have prohibited American and European hotel operators from entering the market.

"We expect hotel supply in Yangon to grow rapidly in the coming years, as a result of this shortage of rooms and pressure from the government to increase capacity. We are estimating supply will increase by around 37 percent per year up to 2016. However, given the continued growth in visitor arrivals, construction lag and potential economic, legal and political risks, we anticipate that Yangon will experience a major shortage of hotel rooms for the next five to ten years until substantial room supply enters the market. The expected supply and demand dynamics over the next few years will give operators the opportunity to substantially increase room rates," said Andrew Langdon, senior vice president of Jones Lang LaSalle.

The market is not without challenges; land acquisition is difficult and sources of funding remain opaque. Certain projects in Yangon are fairly speculative and there is a fair chance they will not move forward. However, Myanmar's new foreign investment law (introduced this month) is aimed at bringing in foreign capital to rapidly address numerous shortages and to grow the economy. The law stipulates that foreign investors will not require a local partner to set up a business. Foreigners will be able to own 100 percent of a company in Myanmar, with any share in a joint venture with a domestic partner mutually agreed upon by both parties. In addition, investors will enjoy various tax incentives such as income tax exemptions of up to five consecutive years, while land leases have been extended to 50 years with options from the government to extend an additional two 10 year periods.

In light of the projected influx of demand over the coming years and limited room supply of international standard in Yangon, hotels have been aggressively renegotiating contracts with travel agents in an effort to increase rates. In response, the government has implemented a USD 150 rate cap to try to mitigate the higher room rates, but this cap is only applicable to lead-in rooms sold to travel agents / tour operators and is due to expire at the end of March 2013. Most hotels have been running at full capacity during weekdays throughout the year and also at weekends during the high leisure season.

"Despite the challenges, Yangon is positioned to grow much faster than many other emerging markets in Asia and is likely to generate high levels of growth across all industries, albeit from a low base. The opportunities in all sectors of real estate are particularly attractive with a severe shortage of supply in the office, hotel, residential and retail sectors. In the hotels sector, even if international hotel supply triples in the next several years, the Yangon market still offers plenty of opportunities for early movers, given the severe lack of current capacity," Langdon concluded.

Source: The Nation