Hotels: A market-sizing exercise (part 5 of ???)

Now that we have both domestic and foreign travelers nights (see yesterday’s post), I can combine them into one estimate for needed hotel rooms. At the low end of my estimate I have 310m guests in 2025, up from around 180m in 2018. At the high end, I have 370m. This implies either around 210m or 250m hotel rooms are occupied in a year (this assumes 1.5 guests per room).

Now to translate these into hotels, we need to take into account occupancy rates. Generally, hotels like to target at least 80% occupancy rate – that’s really good. It takes into account weak periods and down times. It also means that the hotel is fully occupied or close to fully occupied a good portion of the time. It is very hard to a hotel to get above 90% occupied, because that means that even in down times, the hotel is basically close to full.

HOW I CAME UP WITH MY CALCULATIONS. ALL ESTIMATES IN BLUE. BLACK FIGURES ARE EITHER ACTUALS OR FORMULAS. SOURCE: VIETECON.COM

VIETNAM COULD NEED AS MANY AS 950,000 HOTEL ROOMS IN 2025. SOURCE: VIETECON.COM

Vietnam has been averaging well below that 80%. The government reported hotel occupancy from 2006 to 2012, and the average occupancy rate was 58%. Only in one year was it above 60%, and that was 60.7%. In 2006 it was as low as 50%. In more recent years, it appears to have improved, at least at the higher-end hotels. Grant Thornton reported that 4-star hotels showed a 72% occupancy rate in 2017 and 5-star’s a 75% rate. This is well above from the 62-63% rates seen in 2015. So let’s assume that the figure increases to 70% for the market as a whole, that rate would imply that the country needs almost 1 million hotel rooms at the high end of our forecast, up from something like 460,000 in 2018 or an 11.1% CAGR. At the low end, the country would need a bit over 800,000 hotel rooms (8.3% CAGR).

Let’s say all of these estimates are correct. Then the country would need to build between 350,000 to 500,000 hotel rooms over the next seven years, or between 50,000 and 70,000 new hotel rooms a year. On Monday, we will use these figures to see how much investment will be needed over the next few years.