Danang Hotel Development and Investment Market Overview

Danang Hotel Development and Investment Market Overview

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Mauro Gasparotti, Executive Director

Danang Hotel Resort Development Investment Market

This guest post is contributed by Alternaty.


Danang is a destination familiar with many tourists and investors from both Vietnam and abroad. Its success in attracting a large share of tourists and FDI in Vietnam is largely attributable to the progressive and determined local authorities who have helped the City earn its reputation as a no nonsense place for doing business. This led to a construction boom in 2009 and 2010 and a corresponding oversupply in the years that followed. However, the relentless waves of tourist arrivals ensured that the oversupply was short lived and today the hotels and resorts sector is turning in some surprisingly impressive results. But will this last?


Danang City, one of the five independent municipalities in Vietnam, is located on the coast in Central Vietnam, 763 km south of Hanoi and 947 km north of Ho Chi Minh City, with 92 km of coastline. The City serves as a national hub for air, land, rail and sea routes as well as an important regional gateway being located at one end of the East-West Economic Corridor (EWEC) crossing Myanmar, Laos, Thailand and Vietnam.

The latest official population estimate which was conducted in 2012 was 968,000 persons making it the fifth largest city in Vietnam after HCMC, Hanoi, Hai Phong and Can Tho. The City has a total land area of 1,283 skm.

Danang is one of the major tourist destinations in Vietnam, with several white sandy beaches, among them Danang Beach, a large choice of accommodation options and well developed infrastructure. The City is surrounded and protected by the mountains and the sea. Within 100 km there are several UNESCO World Heritage Sites such as the ancient imperial city of Hue, the old town of Hoi An as well as the My Son ruins.



The City consistently achieves GDP growth that ranks among the highest in the country, with 9.1% in 2012 (down from 13% in 2011) compared to Vietnam (5.03%), HCMC(9.2%) and Hanoi (8.1%) during the same period. The economy was until recently ranked as the most competitive in the country according to the PCI (Provincial Competitiveness Index) achieving 1st place for 3 consecutive years from 2008 – 2010. However, in the latest rankings conducted in 2012, the City had slipped down to 12th place from 63 having lost competitiveness in categories including labour training, access to land and depth of legal institutions.

Danang Foreign Direct Investment

Being one of the major real estate development and industrial centres in the country, Danang is also one of the major recipients of Foreign Direct Investment. Of the 251 FDI projects invested to date, worth US$3.1 billion dollars, 23.1% has come from Korean investors, 13.5% from Singapore, 11.4% from USA, 10.4% from Japan while 22.5% was registered by BVI incorporated investors. The majority of the FDI has been channeled into Real Estate and Tourism projects(60.2%) and the next largest recipient has been the Manufacturing and Processing sector at 19.7% of all FDI.




Most visitors arrive by flight, to Danang International Airport, which is the third busiest airport in the country after HCMC and Hanoi airports. Located just 3 km from the city centre, the airport recently underwent a major upgrade with a brand new 3 storey 36,600 sm terminal having been completed at the end of 2011. The two 45 m wide runways can accommodate planes as large as Boeing 767s and Airbus A320s and could handle up to 100 to 150 flights per day. This translates to a capacity currently of 6 million passengers per annum for the new terminal, which is expected to increase to a capacity of 10 million by 2020.

Currently there are approximately 280 domestic flights to Danang per week (including 143 from HCMC, 97 from Hanoi and 17 from Nha Trang). Total domestic arrivals to Danang, which includes domestic flights as well road and rail, was 2,030,000, an increase 10.3% yoy and 1,150,000 in the first half 2013, an increase of 18.0% yoy. It should be noted that Phu Bai Airport in Hue closed temporarily on March 20 for runway repair and is expected to reopen on September 20, therefore domestic arrival numbers have been boosted as extra flights are temporarily being diverted to Danang.

In terms of international flights, it is estimated that both scheduled and chartered direct flights have delivered 117,000 international arrivals in the first half of 2013. This represents a significantly increase of 94.2% year-on-year and is largely due to the opening of the new terminal that has attracted new international carriers. The frequency of chartered flights from China are relatively stable due to the year round draw of the Crowne Plaza Casino while chartered flights from Russia and Europe tend to be much more seasonal. Other modes of arrival include cruise ships with 53 cruise ships carrying close to 60,000 passengers having docked at the Tien Sa Port in the first six month of this year, a healthy increase of 67.6% year-on-year. The City also boasts one of the nation’s largest train stations, while arrivals by car are estimated at only 17,000 for the first 6 months of 2013.

Danang Flights



Danang Visitor ArrivalsTourist arrivals have increased every year since 2006, with a compounded annual growth rate of 16.1%. In 2012, total arrivals were 2.7 million, up 12.0% yoy but down from a growth rate of 34.4% achieved in 2011. In the first 6 months of 2013, tourist arrivals were 1.5 million, up 16.4% yoy. Arrivals in Q2 were especially strong due to the International Fireworks Competition held in April, which attracted an estimated 395,000 arrivals and is held every 2 years.

Arrivals are expected to continue to grow by an average of 14.5% per annum to reach 4 million by 2015 and 8 million by 2020. This means that in only 3 years from 2012 – 2015, arrivals are expected to increase by 1.3 million visitors, or a staggering 48% increase. Should this forecast prove accurate and with limited additional supply expected to come online during this period, the existing properties can expect a continued upward march in occupancies and room rates, particularly during the high seasons.

Danang International Arrivals

International arrivals from China make up an incredible 50% of total international arrivals to Danang. This is no doubt due to the success of the Crowne Plaza Casino attracting Chinese gaming guests on chartered flights. With the recent direct route from Seoul, expect Korean arrivals to overtake those from Thailand.

Although the Russian market dominates arrivals in other coastal destinations such as Nha Trang and Mui Ne, they are yet to make their presence felt in Danang. One reason for this is that the peak season for Russian tourists, coincides with the coolest temperatures and tail end of the wet season in Danang. However, it seems that midscale resorts are increasingly turning their attention on capturing this market by signing deals with some of the major Russian travel agents who are purchasing large blocks of room inventory. International arrivals from Russia are expected grow strongly as more direct flights become available.



According to the Danang Department of Culture, Sport and Tourism, as at June 2013, there were 355 hotel and resort establishments providing a total of 11,447 rooms. Of these, 54 received 3 – 5 star rankings representing 5,323 rooms while 301 received 1 – 2 star rankings representing 6,124 rooms. The forecast for 2015, with supply to reach 429 properties and 15,560 rooms is rather optimistic and assumes that all planned developments will proceed as scheduled, which is highly unlikely to be the case.

Danang Hotel Supply

The Danang market has now welcomed and is well under way in absorbing the majority of new supply that was under development in recent years. Some of the most recent entrants include the InterContinental, Novotel and Pulchra Resorts.

The future pipeline seems to have run dry in comparison with a few years ago, with most of the few remaining uncompleted projects showing no signs of construction activity and are unlikely to come online any time soon. Two of the notable exceptions are the Melia, which is expected to open by the end of this year with 117 rooms and 10 villas in the first phase. While the Crowne Plaza is undergoing a major extension, and is expected to add 1,000 hotel rooms, with some serviced residences, villas and a shopping mall by 2016.



Danang Weather RainfallDanang has a tropical monsoon climate with an average annual temperature of 25.9°C with a peak of 28 – 30 °C in the summer months of June to August and a low of 18 – 23°C during December to February. The dry season lasts from January to August with the driest months being February to April with 23 – 33 mm of rainfall per month. During the wet season, rainfall is 350 – 650 mm per month on average with the wettest month being October.

The summer vacation in Vietnam lasts from May to August which also coincides with the warmest months and high season in Danang for domestic tourists. International tourists from Danang’s key source markets with cold winter months such as from North East Asia (China, Korea, Japan), Russia and Europe tend to visit during the months of December to February.


Hotel Performance

The performance of the city hotels differ markedly from that of the resorts due to variations in terms of clientele, seasonality and client origin. The city hotels are still dominated by one to three star properties, offering value for money at very low price points. Only in recent times have branded upscale offerings entered the market with the Grand Mercure (Q3 2011) and the Novotel (soft opened in Q2 2013) now offering a better range of options, especially for corporate clients and business travelers.

Within the city hotel segment, due to the low pricing of budget hotels with average room rates in the range of US$15 – US$35 per night it is extremely difficult to achieve a room rate premium at any level. The upscale category is achieving room rates in the range of US$45 per night and has so far succeeded in justifying only a contained price premium over the local products, however, rates remain far below that of the resort segment. It will certainly be interesting to see how room rates and performances are affected with the official opening of the Novotel, which has now soft opened with some floors remaining to be fitted out. Occupancy ranges from 45% – 65% and tends to be less volatile in city hotels compared with resorts as they are able to mitigate low seasons with MICE and corporate business from HCMC and Hanoi.

In the beach-side resorts segment, the internationally managed and high end boutique resorts are achieving average room rates in the range of US$140 per night with the lowest being below US$110 for the newly opened or newly re-branded properties and the upper level being US$170 – US$180 for the more established names. Rates typically fall by 20% – 25% in the low season.

The properties within Hoi An tend to target the economic segment with average room rates ranging from US$35 – US$50 per night for the smaller boutique properties inside the old town and along the river while the beach front resorts are achieving rates in the range of US$95 with the lowest trading at US$75 and best performers achieving US$110 – US$120.

Too many self managed properties still rely on local travel agents as their main sales channel. These properties do not have an in house sales and marketing team and do not put much effort into pushing other sales channels and direct bookings. It seems that maintaining occupancy at any cost is still largely favoured to decreasing room rates as these properties are willing to slash rates in return for a few additional percentage points of occupancy.



Although Danang has a large workforce, the lack of hospitality schools means that it is difficult to find staff with enough skills to work in the 4 and 5 star properties. The larger properties with structured training programs are able to train new staff and progressively move them into more senior roles, while the smaller properties are unable to do so and hence face recruitment challenges. Meanwhile, the large increase in supply in recent years has lead to fierce competition for experienced staff which has put an upward pressure on labour costs. For entry level rank and file positions, labour costs range from US$110 – US$180 per month, increasing to US$500 – US$800 for local middle management level and can further double for local HODs and GMs. Expatriate staff are still by far the most expensive options.

The well developed infrastructure system in Danang means that electricity and utilities tend to be in the range of 5% to 6% of total revenue for efficiently operating properties.

Construction costs in Danang are similar to those in HCMC and Hanoi, with average construction costs for a resort ranging from US$600 psm for a low rise mid scale and self managed property to US$1,200 – US$1,300 for a resort of an international standard. In certain cases, such as the InterContinental Danang, construction costs can be much higher due to the challenging location and infrastructure requirements as well as the deluxe interiors and decorations. Construction costs of the interior fit out can increase exponentially when predominantly imported materials are used.


Land Price

Being a large city offering a diverse range of locations, land prices in Danang vary considerably. For beachfront land along Danang Beach which is in high demand, there are much less options available now compared to only a few years ago as practically all land plots have been allocated to investors, both local and foreign. Average sizes tend to range from 3 – 10 ha with asking prices ranging from US$80 – US$120 psm for land approved for commercial use on a long term lease basis and US$120 – US$150 psm for land approved for residential use. In Hoi An, beachfront land is slightly more expensive and ranges from US$170 – US$200 psm. Within Danang City the asking price of land can be as high as US$5,000 – US$10,000 psm for the smaller development sites in close proximity to the Han River. Land plots with asking prices in the range of US$500 – US$1,000 psm can be found outside the CBD with sizes over 400 sm.

Several development sites are available along Hoang Sa Street in Son Tra District, across the road from the beach, with asking prices in the range of US$800 – US$2,000 psm depending on size and approvals. These prices do not include additional approval and transactions costs and are highly variable depending on the size and specific location of the land.


Final Thoughts

No doubt the last few years have been good for Danang. A confluence of factors such as the temporary closure of the airport in Hue, the biennial International Fireworks Festival and the recently upgraded Danang International Airport have all played a part in boosting arrivals and hotel performances. However, there are other factors at play that may leave a more permanent mark on the Danang hospitality landscape which potential investors would be wise not to ignore. The growth in tourist arrivals (both domestic and international) is expected to continue to show solid double digit growth. The new terminal will continue to attract more flights from new destinations, with newly tapped markets such as Russia, China and Korea offering enormous potential which is reinforced by the global growth in international travel and increasing propensity to discover new international destinations. In terms of supply, most of the large scale projects have already come online in the past few years and the pipeline that remains is constrained. The current environment, with tight financing conditions, limited risk appetite, abundance of landowners willing to sell and limited competition may just be the window of opportunity that some have been waiting for and warrant a second look at Danang, for those that are brave enough.



Danang Hotel Market Overview August 2013 by Alternaty


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