The least developed hospitality markets in Southeast Asia—Myanmar, Laos and Cambodia—are throwing open their doors and setting the stage for a multibillion-dollar opportunity for investors.
Myanmar, for example, attracted $2.6 billion in hotel investment last year, mostly routed from Singapore, a fellow member of the Association of Southeast Asian Nations (ASEAN).
Southeast Asia has been an important part of global hospitality investments for decades, so it may be surprising to discover that these three of the 10 ASEAN member states are only just starting to attract global investment and brands.
“They’re certainly all what we’d describe as frontier markets,” said Robert McIntosh, executive director of CBRE Hotels Asia Pacific. Despite having significant growth potential, McIntosh said, “the unifying thing is that they’re still uncertain in terms of regulation—they don’t have clear rules about foreign investment and how to get money in and out.”
But all three are changing and welcoming more investors and revenue-generating tourists. Myanmar, Cambodia and Laos were once extremely isolated but have recently begun to move beyond their backpacker roots.
With a larger population and a higher global profile, Myanmar is the largest of these frontier markets. It shares a border with Thailand and its highly developed tourism industry. The country is also home to 54 million people, compared with 16 million in Cambodia and 7 million in Laos.
Kempinski, Amara, Centara, Dusit, Melia, Shangri-La, Tangram, Hilton and Best Western are just a few of the brands that have invested in Myanmar. The Sheraton Yangon, the chain’s first in the country, is expected to open next year while Marriott is looking for partners, according to comments by Asia-Pacific president Simon Cooper.
A series of reforms over the past few years have created an interesting and significant opportunity in Myanmar, as has the official launch of the ASEAN Economic Community (AEC) on Dec. 31.
Infrastructure improvements will boost regional connectivity, but upgrading hardware is not enough. The still-young business environments of Myanmar, Cambodia and Laos still act as a barrier to entry.
Leases and foreign ownership provisions were also concerns in these three countries. The rules aren’t clear enough for institutional investors, said McIntosh, “but they can get there.”
Given that these three countries have only recently opened up, their hotel stock is extremely tight, with most entrants investing in new builds. The markets are also volatile, as illustrated best by room rates in Myanmar, which were once among the highest in the region, before a recent crash.
“For investors, it’s difficult to tell what’s going on,” McIntosh said.
Investment has stuck close to the region’s larger markets, primarily Yangon, Naypyidaw and Mandalya in Myanmar and Phnom Penh and Siem Reap in Cambodia. Laos is a bit behind Myanmar and Cambodia, but it is not completely off the radar, with investment focusing on Vientiane and Luang Prabang – where a Rosewood property is scheduled to open soon.
Outside of the major urban centers, site options become more complicated, McIntosh said.
“We’ve had a lot of proposals for casino developments and resorts,” he said. “But the big issue is infrastructure – can you get people out there?”
Recently opened bridges and airports that are currently under construction will complement new roads to open up rural and coastal areas for leisure travel, but in the short term, the safer returns are still in the cities.
So who’s investing in ASEAN’s frontier?
McIntosh said the three big investors are China, South Korea and Singapore, with Japan not far behind. More money is likely to come in once existing challenges, such as making existing rules and regulations clearer to investors, are addressed. Due to the lack of stock, much of the activity in Myanmar, Cambodia and Laos is on the development side.
“How will things look at the end of the current building cycle?” McIntosh said. “It’s still unclear and uncertain, which in turn restricts the style and type of investor that is willing to enter these markets.”
From an investor point of view, he said, Myanmar seems most eager to embrace a new way of doing business.
“Myanmar is making a very clear and concerted effort to change and improve standards,” McIntosh said. “They’re not always getting it right, but they’re attracting people because they’re trying to adopt international best practices. That sends out a strong message.”