Vietnam: Phu Quoc Hotel Market Overview

Vietnam: Phu Quoc Hotel Market Overview

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Rudolf Hever, Executive Director

Phu Quoc Location

In deciding on the location to feature for this first newsletter edition, we could not have picked a more underrated investment destination in Vietnam – one with stunning beaches, a strategic location within SE Asia, virgin landscapes, improving infrastructure and a limited number of hotels and resorts, which incidentally are outperforming other destinations in Vietnam. But why has there been a dearth of construction activity? What went wrong in the past and what may the future bring for the island of Phu Quoc?


Location – An investor’s dream

The island of Phu Quoc lies off the southwestern coast of Vietnam 40 km west of Ha Tien on the Vietnam mainland and just 12km from the coast of Cambodia. The Island’s population is only 85,000 while its size being 50 km north to south and 25 km east to west makes it the largest island in the Gulf of Thailand with an area of 574 km2.

Together with numerous smaller islets it belongs to the District of Phu Quoc, of Kien Giang Province which forms part of the mainland. The Island is administratively divided into 2 towns and 8 communes. The largest town and district seat is Duong Dong Town which is located on the west coast.

More than half of the island is covered by forest. With up to 12 km of pristine beaches and a variety of cultural and historic attractions, it is one of the most visited tourist destinations in Vietnam. The island remains relatively undeveloped with the first modern hotel development, Tropicana Resort, only appearing in 1995.


Access – A traveler’s nightmare

The main point of access to Phu Quoc is Duong Dong Airport which is only able to cater for small planes. Vietnam Airlines uses the 68 seat ATR Turboprop and provides 68 flights per week from HCMC as well as 1 flight per day from Rach Gia and Can Tho. Air Mekong uses much newer Bombardier CRJ 900 jets with a capacity of 90 seats and provides 18 flights from HCMC and 9 flights from Hanoi per week as well as some flights from other provinces. Flights from HCMC start from US$50 one way and it takes 1 hour to cover the 300 km distance.

In total, there are approximately 115 flights per week to Phu Quoc which translates to a maximum capacity of 8,500 passengers per week, or 625,000 per annum. The new airport is scheduled to be completed by the end of this year which is expected to boost capacity dramatically by allowing much bigger jets to land. Phu Quoc can also be reached by ferry with regular services from Rach Gia and Ha Tien.

Table 1 – Airlines providing services to Phu Quoc

airlines serving Phu quoc



Supply – Limited & only small scale offerings

Phu Quoc has approximately 60 hotels or 1,500 rooms with the majority being family run mini hotels and guest houses. Most of the current stock was developed by state owned enterprises, with some exceptions being La Veranda, Chen La and Long Beach which were developed under a JV structure with a foreign majority partner. The only two properties managed by international hotel operators are La Veranda managed by Accor under their MGallery brand and Chen Sea managed by Centara as part of their Boutique Collection.

The Vietnam National Administration of Tourism is the government body having the authority to issue hotel star gradings. There are no properties on the island that have been awarded 5 stars by VNAT, Saigon Phu Quoc Resort is the only one with 4 stars, La Veranda is the only 3 star resort while another 36 properties have been awarded less than 3 stars. These star gradings do not necessarily reflect the operating performance nor the true quality of the hotels.

A further constraint of the Phu Quoc market is that there is a lack of properties with sufficient scale and facilities to accommodate the MICE sector. Saigon Phu Quoc resort offers the largest number of rooms at 100 rooms while most of the remaining hotels have between 40 to 70 rooms.

The La Veranda is undergoing an extension adding 27 new rooms to increase the total number of rooms to 70.

A number of large scale resorts are expected to come online over the next 3 years with international operators already in place. These include a Holiday Inn, Crowne Plaza and Novotel. Other brands that have been involved in negotiations include Ritz Carlton and Hyatt Regency.

However, to date there has been limited construction activity and it is difficult to anticipate oversupply of any kind. Looking further ahead, there are several multi-resort developments that are in planning stages.

Figure 1 – Largest hotels in Phu Quoc

Phu Quoc Hotels 2012

Table 2 – Hotel brands expected to debut in Phu Quoc

Phu Quoc Hotel Brands



Demand – Tourist arrivals dwarfed by regional peers

Total tourist arrivals to Kien Giang Province peaked in 2010 with 4.4 million arrivals of which 4.2 million were domestic arrivals and 121,000 were foreign arrivals.

In 2011, even though foreign arrivals increased to 144,000, domestic arrivals decreased by 23% causing total arrivals to fall by 22%. This could be attributable to the highly unsteady local economy during 2011, which would have caused vacation plans to be put on hold. The first 6 months of 2012 has seen a significant rebound in tourist arrivals with 85,000 international (up 33% compared to the same period in 2010) and 2.5 million domestic arrivals recorded thus far. If this pace of arrivals continues it looks likely that total tourist arrivals in 2012 will surpass the peak set in 2010 as well as the government target for 2012 of 5.3 million arrivals in total including 160,000 foreign arrivals.

Of the limited data available specifically for Phu Quoc, released figures include 243,000 total arrivals for the first half of 2012, up 39% from the same period in 2011 while international arrivals increased by 20.4% to 69,000 during the same period. To add some perspective to these figures, during the same period, foreign arrivals were almost 3 million in Bali and just above 2 million in Phuket.

Figure 2 – Tourist arrivals to Kien Giang

Tourist Arrivals Kien Giang



Seasonality – Warm all year but wet and windy monsoon season

The island has a monsoonal sub-equatorial climate enjoying a fairly steady average temperature throughout the year with a peak of 33 °C in April and an annual average of 27.7 °C.

Average rainfall is 190 mm per month with the driest months being November through to March with just 43 mm of rainfall per month. The monsoon lasts from July to October when 360 mm of rainfall can be expected per month. Humidity is also fairly steady ranging from 75% during the dry season and 85% during the wet season.

High season in Phu Quoc is from November to March, with December and the first half of January being the peak period. This period coincides with the best weather (driest months) as well as the holiday season for western tourists looking to escape the cold winter. There is also a 2 week peak period during the lunar new year. During high season it is essential to book stays well in advance as many properties are fully booked.

Low season is from May to October, with the slowest months being June and July. Western travellers tend to choose destinations such as Nha Trang and Da Nang on Vietnam’s central coast during these months as the weather is much better there during these months, especially during June and July when the monsoon begins in Phu Quoc.

Figure 3 – Rainfall & Temperature

Phu Quoc annual weather pattern



Hotel Performance – Among the best in Vietnam

Due to the limited supply of rooms and the growing demand from local and international travellers, hotels and resorts in Phu Quoc have historically delivered a solid performance compared to other locations in Vietnam. In the upscale market the average room rates (ADR) in 2011/12 ranged from $85 per night for the more dated products and up to $165 per night for the well established boutique properties, which is a considerable increase over the past 2 years when the numbers of flights were more limited.

The seasonality of the island remains the main dampener to average room rates. From June to October, competition from other beach destinations such as Da Nang and Nha Trang, with better weather conditions, force Phu Quoc resorts to reduce rates in order to attract the price sensitive local market. Rates can vary as much as 60% from the low to the high season, making Phu Quoc room rates among the most volatile in Vietnam.

The mid and economy tier of the market, which are typically smaller sized properties, achieve a more stable ADR of $20 – $40 per night for the family run hotels and up to $65 per night for the larger and more sophisticated mid scale properties which offer a wider selection of room types as well as restaurant, swimming pool and spa facilities.

Average occupancy in Phu Quoc is among the highest in Vietnam with properties achieving an average of 75% – 85%, supported by a mix of international and local demand, spread throughout the dry and monsoon season. Even properties that are favoured by international clients are able to deliver a remarkable level of average annual occupancy ranging from 65% – 78%, depending on the size of the property and their price strategy with local travel agents.

Overall, the Phu Quoc hotel market enjoys relatively high occupancy compared to other destinations as supply is constrained and properties are small which makes them easier to fill.

Figure 4 – Average Room Rate of Upscale Resorts in Phu Quoc

Phu Quoc hotel Room Rates


Figure 5 – Seasonality of Room Rates of Mid to Upscale Resorts

Phu Quoc Room Rate  Seasonality



Operating Costs – Phu Quoc’s Achilles heel

Although Phu Quoc hoteliers enjoy relatively strong revenue, this is considerably offset by the high operating costs, which are significantly higher compared to properties on the mainland.

The difficulty of attracting skilled workers to the island and the competition between the resorts for trained staff puts upward pressure on labour costs.

Furthermore, the F&B profit margin is eroded by the cost of shipping stock from the mainland or abroad causing some of the international properties to struggle to deliver an F&B profit margin that is higher than 20 -25%. Another major cost is electricity which can amount to 12% – 14% of total revenue, incentivising developers to search for alternative energy solutions.

Developers need to also factor in construction costs which are 15% – 20% higher compared to developing an identical property on the mainland.

Figure 6 – Energy Cost

Vietnam Phu Quoc Energy Cost



Land Price – Land is abundant but good deals are rare

Vietnam Phu Quoc Land Price

When it comes to absolute beach frontage, Phu Quoc offers both the cheapest and most expensive options in Vietnam, depending on the location within the Island. Land in Phu Quoc is abundant but the difficult process of securing land and obtaining construction approvals make “ready to build” projects rare as well as costly.

The asking price of beach-front land can be as high as US$150 – US$350 psm for smaller development sites on Duong Dong Beach (Red Zone) and as low as US$30 – US$50psm for the more isolated locations such as Cua Can Beach and Truong Beach (Green Zone) suited for destination resorts. However, in Vietnam, as is mostly the case in the region, the initial, or public, asking price for land can be considerably higher than the actual transacted price. In the majority of cases, buyers can secure a reasonable discount on the asking price by spending the time and effort during the negotiation process.

A JV partnership with a financially strong and well connected local company or individual is the surest method for foreign investors to minimise the development timeline. Large multi-phase master planned developments that are searching for investors are still to be found throughout the island. Some of these are private investors looking for JV partners while others are available directly from local authorities.



Final Thoughts

The jury is still out on whether Phu Quoc is “the next big thing”. It has certainly been touted as the next Phuket or Bali for several years, especially by local stakeholders, but during this time there has been a lot more hype than progress. Activity on the ground certainly gives plenty of voice for the critics.

Many issues stem from land compensation and relocation, as well as the revised island master plan which caused many projects to be in conflict with the new zoning plans. Other problems that need to be resolved are the slow construction progress of the road network and the chronic electricity shortage.

Providing some hope that Phu Quoc is about enter its next development phase is the new airport, built on 800 ha in Duong To at a cost of US$970 million. It is committed to open by the end of 2012 and will be able to handle medium sized planes such as the Airbus A320 or Boeing 767 with a capacity to process 7 million arrivals per annum. It seems that Phu Quoc does have many of the ingredients required to become a major tourist destination, however, until the day that international tourists are able to arrive on direct flights from abroad, Phu Quoc will only continue remain “the next big thing”.


Download the Phu Quoc Hotel Market Overview pdf.

Images: Rudolf Hever, Alternaty


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