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Myanmar hotel supply expected to surge

Hotel supply in Myanmar will surge in the coming years, despite several challenges facing new operators, a new report has predicted.

The forecast by Jones Lang LaSalle (JLL) Hotels, which was released today (19 November 2012) said that “international quality hotel supply” in Yangon is expected to grow by 36.7% per annum from 2012 to 2016.

The Governor's Residence, managed by Orient Express, is one of the few international hotels currently operating in Yangon
The Governor's Residence, managed by Orient Express, is one of the few international hotels currently operating in Yangon

“We expect hotel supply in Yangon to grow rapidly in the coming years, as a result of this shortage of rooms and pressure from the government to increase capacity,” said Andrew Langdon, senior vice president of JLL Hotels. “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 room supply enters the market. The expected supply and demand dynamics over the next few years will give operators the opportunity to substantially increase room rates.”

JLL also revealed some of the challenges hotel operators will face in entering Myanmar. These include land acquisition and funding sources, which according to JLL remain “opaque”. It also said that many of the planned projects in Yangon are “fairly speculative” and unlikely to be completed.

New laws however, such as the foreign investment law, which was introduced this month, are aimed at driving foreign direct investment (FDI) and stimulating economic growth. Under the new rule, foreigners will be able to own 100% of a company in Myanmar and could enjoy tax incentives. Land leases have also been extended.

In light of the projected influx of demand over the coming years and limited room supply in Yangon, the government has implemented a US$150 per room per night cap to try to curb rate inflation. JLL noted however, that this cap is only applicable to lead-in rooms sold to travel agents and tour operators, and is due to expire at the end of March 2013.

“Despite the 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 hotels 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.

 

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