Back from the past: Unfinished hotels from decades past are fertile ground for development

As Myanmar’s hotel industry rushes to keep pace with rapidly growing demand, it has a fortunate head start: a large number of projects can be resumed after they were started but became dormant or slow-moving during the country’s long years of isolation. Downtown will be home to the forthcoming Hilton Yangon, a 300-room, five-star hotel set to open in 2014. The project was first started in 1993 and was originally planned to be a Sofitel. Part of a mixed-use, glass and steel tower, it ran into delays until it was put on hold in 1998, only to later be revived by Thai investors in 2009. Further out by Yangon’s Kandawgyi Lake is a Shangri-La hotel project initiated in the 1990s and also put on hold. Now the project is rescheduled for completion in 2017. By Inya Lake there is also the forthcoming Novotel Yangon, part of a mixed-used project that started in 2001 but then stalled until 2010. Another way hotel rooms are brought onto the market quickly is by restoring rooms that became offices when hotel business was slow. Shangri-La’s existing hotel in Yangon, under its Traders brand, converted several floors for use by the UN and its agencies. The UN moved out in 2013 so the floors could be converted back to hotel use, but terrorist activity in late 2013 has set back development. Such relatively speedy restorations of latent capacity will help alleviate some of the pressure of rapidly rising demand for hotel accommodation, especially in the high-end Yangon market where business travellers are concentrated. The availability of stagnant projects with allocated land is buying considerable time for the sector and the government to develop a better land allocation and investment model during the country’s highly sensitive political transition.

Gaining Ground

With most of the highest quality unused land in government hands, especially in Yangon, developing a more transparent model of parcelling out public land for hotel and other projects will be crucial. As the government has tried to distance itself from the former military regime’s habits of forcibly acquiring land from others, the process of awarding land to outsiders has understandably slowed down.

Since high-end hotel projects in Yangon depend on getting hold of public land, there are few truly new projects. The only large, new hotel project in Yangon that recently received final approval is a $440m mixed-used development by Vietnam’s Hoang Anh Gia Lai Group. The 18.1-acre project includes a 414-room, five-star hotel scheduled for completion by the end of 2014.

Sukhdeep Singh, managing director of Inya Lake Hotel, told OBG, “The government should make the process for foreign investors easier. There should be a one-stop shop for foreign investors, and the government needs to make more public land available. The main reason more investors aren’t coming is that what land is available is too expensive.”

Investment

The several revived, older hotel projects also offered Hilton and Accor (owner of Novotel) a valuable opportunity to break into Yangon’s lucrative high-end hotel market without having to invest in a development, as the projects’ Thai and local developers were looking for established brands to market their new properties. Manfred Keiler, former general manager of Yangon’s Sedona Hotel, who managed a Marriott hotel in Yangon until the chain quit the country in 2002, told OBG he believed it would be difficult for global chains to win over established owners and operators of prime Yangon properties. “If they want to come in they will probably have to invest. It’s going to be very hard to just pick up management fees,” he said.

An example of such an investment is a planned five-star hotel project developed by local billionaire Serge Pun through his Singapore-listed Yoma Strategic Holdings. The project consists of a renovated former colonial Burma Railway building within a mixed-use development on a 4-ha site and has drawn a commitment from The Hong Kong and Shanghai Hotels group to take over a 70% stake in the hotel and manage it under its Peninsula chain. As of early 2014, however, that project had yet to receive final government approval.