Demand for hotels booms in Yangon

Yangon, Myanmar's largest commercial city, has up to 8,000 hotel rooms at present, but this number is expected to rise by at least 36.7 per cent per year between now and 2016.

A new report from property consultant Jones Lang LaSalle shows that owing to the shortage of rooms compared to the large number of visitors since the country reopened, the average room rate has grown by 350 per cent from 2007 to 201.

The growth predictions are based on the assumption that all projects underway or in the pipeline get completed.

There has been a tremendous growth in the number of visitors to Yangon over the past year as Myanmar kicked off economic and social reforms, and as a result, hotels are now experiencing a significant boost in demand from both corporate and leisure travellers. However, major international brands from the United States and Europe are still relatively scarce in Yangon as economic sanctions have blocked them from entering the market.

"We expect hotel supply in Yangon to grow rapidly in the coming years, as a result of the shortage of rooms and pressure from the government to increase their capacity. We are estimating supply will increase by around 37 per cent per year up until 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 10 years until substantial suppliers enter the market. The expected supply and demand dynamics over the next few years will give operators the opportunity to substantially increase room rates," Andrew Langdon, senior vice-president of Jones Lang LaSalle, said.

The market comes with challenges as land acquisition is difficult and sources of funding remain opaque. Certain projects in Yangon are fairly speculative and there is a fair chance that they will not move forward. However, the new foreign investment law introduced this month is aimed at bringing in foreign capital to rapidly address shortages and help the economy grow.

The new law says that foreign investors will no longer require a local partner to set up a business.

Foreigners will be able to own 100 per cent of a company in Myanmar, with shares 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 exemptions of up to five consecutive years, while land leases have been extended to 50 years with options from the government to extend for an additional two 10-year periods.

In light of the projected influx of demand over the coming years and limited supply of international-standard rooms in Yangon, hotels have been aggressively renegotiating contracts with travel agents in an effort to increase their rates.

In response, the government has implemented a US$150 (Bt4,600) cap to try and mitigate higher room rates, but this cap is only applicable to rooms sold to travel agents or 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 season.

"Despite these 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 hotel 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
http://www.nationmultimedia.com/business/Demand-for-hotels-booms-in-Yangon-30195020.html