Rising land prices, tighter zoning enforcement and mounting infrastructure pressures — particularly in Bali — are reshaping hotel investment decisions in Indonesia. The issues were discussed by industry executives during the Pipeline Power: Trends in Hotel Deals and Tourism Development panel at the Hospitality Indonesia Conference in Jakarta last February.
One recurring theme in the discussion was that capital remains available for hotel projects, but investors are becoming more selective. Deals now face closer scrutiny as developers assess long-term viability rather than relying solely on continued tourism growth.
“It really depends on the deal and who you’re working with,” said Lee Lin, Regional Director Asia Pacific at Nobu Hospitality. “They care about their financial metrics, but it’s more of a long-term play.” Lin noted that many investors entering hospitality projects are private individuals and family offices taking a longer investment horizon.
At the property level, revenue diversification is becoming increasingly central to hotel economics. Food and beverage operations, once treated largely as supporting amenities, are now viewed as core drivers of income in lifestyle-oriented properties.
“That’s everything we talk about,” Lin said. “On average, in our hotels, one seat in a restaurant makes as much revenue as one room.”
Those shifts are also influencing how hotels are designed. Developers are placing greater emphasis on flexibility, particularly as demand from segments such as meetings and events fluctuates.
“You can’t have ballrooms that only serve one purpose anymore,” said Evan Burns, Area Vice President Indonesia at SONO Hotels & Resorts. “If you don’t have MICE business, what do you convert it to? We need products that can change over time.”
The pressures shaping the sector are most visible in Bali, where rapid tourism growth has collided with physical constraints. Land prices in areas such as Canggu and Uluwatu have climbed sharply in recent years, whilst stricter spatial zoning enforcement has reduced the availability of development sites.
“It is pushing development companies to buy smaller plots,” said Bogank Serpiyadi, Director at Magnum Estate International. “Or they switch into higher-value facilities instead of just building.”
Mixed-use developments are increasingly part of that response. Integrating hotels with restaurants, retail and lifestyle components allows developers to maximise land use whilst creating additional revenue streams.
Infrastructure pressures are also becoming harder to ignore. Traffic congestion, water management and environmental concerns are increasingly influencing how investors evaluate the long-term competitiveness of tourism destinations.
“It’s not hotel versus hotel anymore,” Burns said. “It’s about people potentially looking for another destination.”
Those constraints are beginning to influence expansion strategies. Operators with significant exposure in Bali are approaching new projects more cautiously than in previous years.
“When you already have significant volume in Bali, you need to be careful,” said Rio Kondo, Vice President of Development Indonesia & Malaysia at Accor. “Our development there is definitely slowing down compared to five years ago.”
Developers are also experimenting with different project structures. Branded residences have become increasingly common, allowing developers to generate upfront capital through residential sales whilst maintaining hospitality operations tied to a global brand.
“About 80% of our pipeline has branded residences,” Lin said, describing the model as a way to secure early funding whilst building a managed hospitality community.
Investors are also beginning to look more closely at the potential of repositioning ageing hotels.
“There are a lot of hotels out there that are actually dilapidated,” Kondo said. “Conversion and reusing existing hotels should be something investors look at.”
Indonesia’s hotel expansion therefore continues, but the dynamics behind new deals are evolving. Land costs, infrastructure capacity and diversified revenue models are becoming central considerations — particularly in Bali, where rapid tourism growth is increasingly meeting physical and environmental limits.
