Apac hotel management agreements now average 17 years: JLL
As hotel markets in the Apac area mature, HMAs are expected to incorporate more flexibility, involving provisions for sustainability and termination possibilities, to optimize hotels’ value, says Nijnen. “We are seeing proprietors become significantly smart in their management agreement negotiation and critically consider their branding and operating styles.”
Another significant shift seen in the previous 20 years is the incorporation of performance discontinuation arrangements in HMAs. The survey discovered that 93% of contracts now include this condition, typically linked to metrics such as income per offered room productivity and gross operating profit.
Hotel management agreements (HMAs) in Asia Pacific (Apac) are increasing in duration, according to study by JLL. Findings from a recent poll contracted and presented collectively by the realty consultancy and legal services company Baker McKenzie discovered that the standard term of HMAs has already raised by four years ever since 2005 to reach 17.4 years as of 2024.
The study analysed results from 400 HMAs over the past twenty years, consisting of 145 deals signed in between 2018 and 2023.
According to the survey, the common base fee in HMAs has actually declined to 1.6% of earnings from 1.7% previously. Even so, the loss in management fees is significantly countered by higher sales and marketing fees billed by drivers, program charges and additional variable expenses, states Nijnens. The survey found that a greater proportion of providers are billing sales and marketing costs of 3% or even more on room profits or overall income compared to preceding years.
JLL accentuate that the size of HMAs executed in the area changes across the various markets. In the Maldives and Japan– markets with even more luxury hotel properties and operators that prefer to lock in companies for longer– the average HMA duration stands at 26 and 23 years, specifically. On the other hand, Australia favours shorter agreements and unencumbered possession sales, causing an average HMA term of 15 years.
The duration for HMAs checked in Apac has trended upwards in spite of a decrease in monitoring costs, claims Xander Nijnens, top supervising supervisor and head of advisory and asset management for LL Hotels and Hospitality Group, Asia Pacific. “In the majority of markets, we have observed hotel supervision charges come down, and increasingly, costs are associated to outcomes against concurred performance limits, which create added rewards for owners to perform,” he includes.
JLL and Baker McKenzie even prepare for a surge in different operating models for accommodations, with a development in strain for white label providers, straight franchises and ‘” manchises”, the term for an HMA where an option to transform the HMA right into a franchise arrangement is involved.
