Vietnam: Too Fast, Too Soon  
Home
Property Guide
Market Watch
Mortgage Finance
Tax
Titles
Rentals
Management
Map
Practical Information
FAQ

 

To translate this page
Click a Flag

 

 

Market Watch - Page 21:

Search this site

Budget Hotel Brands Shake Up The Scene.

 

 

 

Over the past few years, there has been a definite trend of international budget brands successfully entering the marketplace in Thailand , be it the hyper mart concept with Lotus Tesco, Carrefour and Makro, or low-cost carriers (LCCs) such as Tiger, Air Asia and Jet Star.

These types of volume and value-for-money offerings are garnering legions of loyal consumers. Within the hotel industry, the opening of the first Ibis property - a venture in Patong between Thai developer Erawan and the giant French chain Accor - is looking to change the mass accommodation market. There is already a second Ibis under construction in Kata, while in Bangkok , a multitude of new properties in this sector are being built.

Two of the main proponents of the major proponents of budget brands are the Intercontinental group (Intercon, Crowne Plaza, Holiday Inn) with their holiday express model the Accor (Sofitel, Pullmann, Novotel, Mercure) with Ibis. There are also other global brand in on the game with Carlson (Regent, Radisson) targeting Park Plaza , Hilton, Hampton Inn and regional chains such as Hong Kong 's Langham promoting a no-frills Eaton product.

Asian hotel owners, developers and consumers in the region have traditionally resisted budget offerings because they, are seen as downmarket or 'cheap, but perceptions are now shifting.

In North America and Europe , the budget segment has been around a long time. Budget establishments are often located in areas with low land costs and rely on transportation links, such as the inter-state highways in the US and nearby railways in Europe . Here, expensive land costs in central business districts (CBDs) has long been a deterrent to this modelling.

Looking at a normal hotel operating model, although operating trends vary from market to market and between city-centre and resort properties, guestrooms make up the most profitable element in both these markets. Direct profitability in a well-run operation with a stable occupancy is in the region of 80-85%, whereas profitability for food and beverages tends to be 20-25%.

Comparing a budget hotel to a four-star property, gross operating profits for a four-star hotel may be in the region of 40-45%, whereas a budget hotel can see profits of 55-60% and above.

With greater revenue in the higher-yielding-rooms segment and less income from food and beverages and other segments, there is a superior flow through of profits to the bottom line. In most cases of branded hotel models with good overseas distribution, rate-effective models trade at higher occupancy than full service hotels. For example, a four-star hotel can run effectively at 60-70% occupancy, whereas a budget property

 

 

 

would have to run at 70-80% occupancy.

Here in Phuket, the likely average room rates for a budget model would be 1,500 to 2,000 baht per day.

For a hotel owner, the budget type product has contained development costs. Guestroom size averages 16-18 square meters with a gross floor area (GFA) requirement for the whole building being approximately 34436sqm. Food and beverage offerings are usually just a lounge, which offers breakfast only, to a single limited-service cafe for simple all-day meals.

Ancillary facilities, such as swimming pools, fitness centres and function rooms, are not included. Staffing ratios range from 0.25-0.30 staff per room. Compare this to a full service four-star hotel, where guestrooms are 40-45sqm and the total GFA is in the range of 80-100 square meters. For these types, the GFA is increased with the addition of multiple restaurants, meeting spaces, spas and other facilities. Staffing in four-star hotels also moves up drastically to between 1.0 and 1.2 staff per room.

On an investment model, successful execution of pro forma and budgets can mean the difference between success and failure in the venture. Many of the variables are eliminated in this level of product because guestrooms are standardized, the skill set of interior design and architecture is contained, and the focus on the budget is geared to maintaining high-revenue areas.

Overall, GFA relates to the total build area for the project and impacts the hotel cost, so if you can contain this successfully, the returns will be enhanced. In a nutshell, if a budget hotel can obtain 60% of the average room rate of a four-star hotel's superior flow though rooms' sales and gross operating profit with a fraction of the development budget, and then this looks to be a wise financial model.

As we move into a different worldwide economy in the next few years, it's logical to expect short-haul tourism and travel to increase with the key markets in close proximity to Thailand , such as those of China and India .

These remain rate sensitive and will certainly see raw numbers at the lower end of the spectrum. Here in Phuket, moving upward from budget into mid-tier we are seeing a revolution in hotel operating models with Marriott's Courtyard brand opening three properties this year in Surin, Kamala and Patong. These hotels are cost-efficient units that rely on lower operating costs and reasonable rates to keep occupancy high.

This is no doubt going to give the existing hotels out there a run for their money. For the consumer, all of this signals a great new trend in value and choice - a bright ray of sunshine indeed.

 

 

 

   

Bill Bamett is Managing Director of C9 Hotelworks a Phuket hotel and residential consulting firm With more 20 years experience in the region, he has played an active role in some of the island biggest develovments.

       
       
Articles: 2009
 

Koh Samui's Luxury Market Emerges

 

The Next Big Thing In Ocean Front Real Estate

 

Predicting The Year Ahead - 2009

 

Phuket For Sale

 

Is Phuket Property Too Expensive

 

Is Phuket Ready For Fractional Ownership?

 

Koh Samui's Emerging Luxury Market Part 2

 

The Winds Of Change

 

Phuket Luxury Villa Market Update Part 1

 

 

       
 

Archived Articles: 2007 - 2008

 

Krabi - On The Edge Of A Boom

 

Khao Lak, Back To The Future

 

Rental Income - Investment Rent And Raves

 

US Financial Crisis - Living The Sub-Prime Life

 

Hotel Branded Realestate, Battle Of The Brands

 

Aesthetics - Out With The New, In With The Old

 

Rental Property - Plus & Minus, Buying A Hotel Unit

 

Local Communities - Cables Gone Wild

 

Agent Commission, The Low Down About Paying Up

 

Aesthetics - Bold Designs Keep Boredom At Bay

 

Phuket - The Next Big Property Trend 2007

 

US Financial Crisis - Clouds The Property Horizon

 

Pre-plan your purchase, and prevent future pain

 

Vietnam, Too Fast Too Soon

 

Timeshare, High End Fractional Ownership Matures

 

How we should protect the property cash cow

 

Re-Inventing Patong

 

Bali, (property) Supply Surges Ahead

 

Property Developers - Number Crunching Pays Off

 

Phuket, Battle to preserve the beaches

 

Aesthetics - Designing For Success

 

Phuket Luxury Villa Market Update Feb 2009

 

Low Season - Cyclical Cynics

   
 

 

   
 
About | Contact Us |Resources | Glossary | Privacy & Disclaimer | Site Map | Exchange URL
Phuket Property Watch
Phuket Property Sales Co., Ltd. Inc. No: 0837354708532
393/2 Moo 1 Srisoonthron Rd, Cherngtalay Phuket 83110 Thailand
Mobile: +66 87 0500010 Tel: +66 76 270752