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Top 5 things Phuket hotel developers should know

Bill Barnett

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Top 5 things Phuket hotel developers should know | The Thaiger

by Bill Barnett from c9hotelworks.com

Taking a 2020 view of Phuket’s hotel development pipeline that has now surpassed 15,000 new keys it’s hard not to be apprehensive. From a macro standpoint, the destination’s airlift and location are key success factors.

But for the myriad cast of new and inexperienced hotel developers out there, perhaps a visit down Alice’s rabbit hole is necessary to see just how to measure success in a crowded playing field. Here is our Top 5:

Bed Factories

As beachfront land and ocean views disappear in an urbanising trend, hotel development is seeing an unprecedented push inland. Big, medium and small box properties are springing up in locations where owners only explanation for a hotel, is that they already owned the land. Typically, these hotels have limited views or curb appeal, are located away from key demand generators and are undisguisable in design and character. Hash tag them as vanilla.

These bed factories are totally geared on volume and tourism as a commodity. This set is the most influenced by market volatility and ultimately the only reaction to occupancy fluctuations is to drop rates, while relying on high-commission OTA’s (online travel agents) to dole out business. In a supply demand imbalance these hotels are most at risk. An industrial approach to tourism rarely works, as there are always other destinations who will undercut you on price. Avoid the factory syndrome if you can.

Having A Brand Is Not Enough

Common wisdom is that brands outperform independent hotels. In Phuket there are many striking examples of independents trading above their branded cohorts, but more telling is the bottom line. They call this the hotel business for a reason and only the bottom line goes to the bank. Certainly, bank lending requirements, and hotel residences are driving a strong amount of branding.

One key market impact is hotel consolidation of global chains, with ACCOR and Marriott properties being scattered across the island and again commoditization comes into play. When we analyse costs of chain management, reality bites when the total absolute cost including system fees, annual assessments, sales and marketing etc. often equate to 8-10% of revenue.

When hotels have scale, this works. When they do not, the bottom line suffers. Likewise, as we look at performance of the brands in Phuket, the reality is that well-managed hotels with key aspects and location win, while for others having the name game not an assurance of success given you are just one of many in playing field that is continually stretched. Brands in many  cases are a good choice but it’s not always a given.

Top 5 things Phuket hotel developers should know | News by The Thaiger

One Size Does Not Fit All

I’m a lifelong hotelier and one thing I can assure you is generally speaking hospitality lags many other industries in terms of innovation and change. Hotel developers are slow to understand the dynamic change the smartphone and technology have created in opening up a new world to hotel guests. We have ubiquitous coffee shops which are filled to the brim at breakfast, and the rest of the day mimics one of those movies where aliens have taken all of earths inhabitants to outer space. Dead, empty space.

In Phuket with the thousands of spas, hotels still develop large resort spaces that remain empty for most of the day as guests march out the door with a smartphone in hand.

While hotel chains shout out brand standards and must haves, hotel owners have not taken a similar approach to real estate developers and measure returns in space efficiency. My best example is look at a full-service restaurant in a mall where an operator is paying expensive rent and look at operating efficiency and footprint and compare that to a hotel outlet which typically would have a larger space by 50-100%.

Hotel design, spaces and facilities have to come full circle as a business decision that caters to current and forward demand, and not just reciting the way things used to be done. Less can be more.

Sheep Syndrome (aka copy/paste)

Developer motivation is always an interesting case for hotels. Often times, inexperienced developers want to own a hotel as their friends have one too. They find an architect, look at other hotels nearby, perhaps check an online OTA to see what rates are being charged and that pretty much sums up their entire business development process. They follow their friends or their perceived market competitors just like a flock of sheep being led off a cliff into the surging ocean of hoteldom. Some will sink and some will swim.

All too often the process is not unlike the endless procession of Phuket tourist restaurants with the infamous taglines proclaiming Thai food, western food, seafood and of course pizza. The rationale of the business is to follow the mass, copy and paste, unwilling to ask the hard questions, develop an understanding of the market and commit or be bold enough to walk alone with a product that cannot be classified as ‘same same’.

Top 5 things Phuket hotel developers should know | News by The Thaiger

Don’t Be Afraid To Be Niche

As many destinations in the world have seen success with best in class innovative products, Phuket has seen its share of products that attract a wider international audience. Thanyapura with their wellness and sports offering and Twinpalms paired with Catch Beach Club are just two examples. Another emerging trend is complexed hotels with two brands and tiers with a single set of management and back of house.

In Bangkok the Erawan group has done two of these with more under development. Looking at the business model, operating profit is often 8-10% higher with economies of scale and development or investment cost 10-12% lower due to not replicating areas twice.

My final words on how to be a successful hospitality developer is doing exactly that. Take the lead, don’t expect your hotel operator, architect, muse or friend to magically direct you down Alice’s rabbit hole to success. Innovate, take risks and look to the future, not just the present and past.  Teams need leadership as do successful businesses and after all that’s why we call it the hotel business.

Top 5 things Phuket hotel developers should know | News by The Thaiger



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Read more headlines, reports & breaking news in Phuket. Or catch up on your Thailand news.

Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements and is continually gathering market intelligence. Over the past few years he has released four books on Asian property topics.

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Business

Bank of Thailand relaxes Loan to Value to boost sluggish property market

The Thaiger & The Nation

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Bank of Thailand relaxes Loan to Value to boost sluggish property market | The Thaiger

PHOTO: booking.com

The Bank of Thailand says it will relax the Loan to Value (LTV) for homebuyers purchasing residences together and that borrowers or co-borrowers applying for a loan under the first home buyers rule and who do not own any other residence would be given a 90% mortgage on a condominium and 95% for a single detached house and townhouse.

The “co-borrower” is defined as a borrower supporting the family in its bid to obtain a mortgage to buy a residence but who will not become the owner of that residence.

Issara Boonyoung, CEO of Kanda Group, chairman of Business Housing Association, says he’s in favour of relaxing the LTV.

“We believe that the relaxation of the LTV in relation to co-borrowers will see the property market improve by up to two per cent for the rest of this year. This market represents about 20% of the total property market value, which is expected to be worth about 760 billion baht this year.”

He added that the relaxing of the rule will open the opportunity for co-borrowers to make a down payment of about 10% for condominium and 5% for single detached house and townhouse under the LTV first home concept.

The transfer of residences on hold this year has continued to drop and currently stands at 7%, which is better than the early estimates of 10%.

The LTV, which became effective on April 1, 2019, resulted in a drop in the property market in the second quarter of this year, as most homebuyers sped up the transfers of their residential projects and completed them in the first quarter. This had a direct impact on the financial results of property firms, with most announcing a double-digit drop in the second quarter.

SOURCE: The Nation

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Business

Thai GM’s diesel plant in Rayong builds 500,000th engine

The Thaiger & The Nation

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Thai GM’s diesel plant in Rayong builds 500,000th engine | The Thaiger

GM Powertrain Thailand has produced its 500,000th four-cylinder Duramax turbo-diesel engine, a production milestone since production officially started in 2011.

GM announced that the Rayong plant is the first GM facility in the world to produce the engine.

Hector Villarreal, president of GM Southeast Asia says the Duramax engines serve as the heart of the company’s ‘Colorado’ and ‘Trailblazer’ models.

“They are one of the most important components that we manufacture in Rayong for both domestic and export markets. Reaching half a million engines is not only an important milestone for the GPS team but also for everyone at GM Thailand. You should all be rightly proud of achieving this together.”

Amnat Saengjan, vice pesident of manufacturing for GM Thailand, added that the it is the only GM facility that fully manufactures the 2.8L Duramax diesel engine.

“I am very proud of our team members who have taken a key role in helping us achieve this milestone, thanks not only to every team member’s hard work and dedication, but also to the growing popularity of the products that use the Duramax engine, the Chevrolet Colorado and Trailblazer. It shows how far we have come.

He said GM Thailand’s Rayong facility was recognised for its efforts in environmental conservation at the Prime Minister’s Industry Awards of 2018. It was one of two automotive companies that received this award. The facility is part of GM’s 142 manufacturing and non-manufacturing landfill-free facilities globally.

SOURCE: The Nation

Thai GM’s diesel plant in Rayong builds 500,000th engine | News by The Thaiger

Chevrolet ‘Colorado’, which carries the Thai-built engine

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Bangkok

Tollway company says ‘no’ to Bangkok motorway discounts

The Thaiger

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Tollway company says ‘no’ to Bangkok motorway discounts | The Thaiger

PHOTO: Thai PBS

Expressway and motorway operators say there will be no further discounting of the country’s toll fees.

Bangkok Expressways & Metro Public Company says the proposal by the new Transport Minister for expressway tolls to be cut by an average of 5-10 baht is not going to happen. The company claims they have already helped the government over the decades-long dispute with the Expressway Authority of Thailand, a state agency which owns several expressways.

But the BEM and EXAT say they have recently reached a compromise agreement over the dispute, when EXAT agreed to extend BEM’s concession to operate three expressways – Srirat expressway, Section D of the expressway between Rama IX road to Srinakharin road and the Bang Pa-in to Pakkred expressway – for another 30 years.

In return, BEM agreed to drop the demand for 137.5 billion baht from EXAT for breach of contract over expressway fees, drop a dispute over a non-competition clause for the Pakkred-Bang Pa-in expressway and to settle for just 58.8 billion baht in compensation, which will be paid in the form of an extension to the concession contract to operate three expressways.

Thai PBS reports that BEM also agreed to undertake construction, maintenance and service of double-deck and bypass routes and road expansion projects on several sections of Part Two expressways.

BEM executive Mr. Phongsarit Tantisuvanitchkul said yesterday that the Transport Minister’s proposal for a 5-15 baht cut in expressway tolls is a separate issue from the dispute and that it is difficult to be implemented, pointing out that the company has already absorbed substantial losses for the government.

He added that he expected the compromise deal will soon be submitted to the cabinet for approval, hoping that the cabinet will not make any changes to the terms of the settlement following about a year of negotiations.

BEM is currently collecting 7-8 billion baht in expressway tolls per year, with a revenue growth rate estimated at 1% to 3% per year.

SOURCE: Thai PBS

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