A 20-Year Look at Hotel Management Agreements in Asia Pacific: Trends and Insights

The Hotel Management Contract Survey 2024, conducted jointly by JLL and Baker McKenzie, offers a comprehensive analysis of hotel management agreements (HMAs) in Asia Pacific over the past two decades. The study, encompassing approximately 400 HMAs, reveals fascinating trends and insights into the evolving dynamics of the hospitality industry in the region.

Shifting Durations and Fee Structures

One of the most prominent findings is the increase in HMA duration. Since 2005, the initial term of HMAs has increased by an average of four years, reaching 17.4 years in 2024. This shift reflects a growing preference for long-term partnerships between hotel owners and operators. However, regional operators generally opt for shorter terms, favoring flexibility in their contracts.

The study also delves into the evolving fee structures within HMAs. While management fees have decreased in the past five years, averaging 1.6% of revenue, sales and marketing fees have increased. This trend reflects a shift in the way operators are compensated. “In most markets, we have seen hotel management fees come down, and increasingly fees are linked to results against agreed performance thresholds, which creates additional incentives to operators to perform,” says Xander Nijnens, Senior Managing Director, Head of Advisory & Asset Management, JLL Hotels & Hospitality Group, Asia Pacific.

Sustainability and Performance Termination Clauses: Growing Significance

The survey highlights the increasing importance of sustainability and performance termination provisions within HMAs. 93% of contracts now include performance termination clauses, reflecting a growing emphasis on accountability and performance-based relationships. These clauses typically involve two performance tests: against revenue per average room (RevPAR) performance of a competitive set and gross operating profit (GOP) performance against budget, generally over two consecutive years. “It is clear that not all performance termination provisions are created equally, and it is critical to get into the detail of the mechanism and thresholds to ensure there is a real option to terminate when the operator is not performing,” says Sebastian Busa, Head of Commercial Real Estate in Australia and Co-Chair of the Asia Pacific Practice, Baker McKenzie.

Emerging Trends Shaping the Future of Hotel Management

The study identifies three key themes that will shape the future of HMAs in Asia Pacific:

A Rise in Alternative Operating Models

The landscape is witnessing a growing presence of alternative operating models beyond standard hotel management contracts. White label operators, direct franchises, and potential manchises are gaining traction. These models offer greater flexibility and customization for hotel owners, allowing them to tailor their operations to specific market demands.

Sustainability Influence

Sustainability is becoming increasingly integrated into the hospitality industry. Owners and operators are incorporating sustainability clauses into contracts, reflecting a growing awareness and commitment to environmental and social responsibility. This trend is driven by both regulatory pressures and consumer expectations.

Room for Terminations

The rise in hotel sales and a more liquid market are leading to a higher premium on vacant possession assets. This trend is driving the inclusion of more termination options in HMAs, allowing owners to exit contracts more easily and secure greater flexibility in their asset management strategies.

A Glimpse into the Future of Hotel Management in Asia Pacific

The study concludes that the future of HMAs in Asia Pacific will be marked by greater flexibility, more robust sustainability provisions, and increased emphasis on performance and termination options. These developments will empower hotel owners to optimize the value of their assets while ensuring alignment with evolving market dynamics and consumer preferences.

JLL and Baker McKenzie: Leaders in Hospitality Industry Research

JLL, a leading global commercial real estate and investment management company, and Baker McKenzie, a leading international law firm, have a long history of collaboration in conducting industry research and providing expert insights. The Hotel Management Contract Survey 2024 is a testament to their commitment to driving innovation and progress within the hospitality industry in Asia Pacific.

The survey highlights the dynamic and evolving nature of the hospitality industry in the region. As owners and operators navigate these changing dynamics, the insights gleaned from this study will serve as valuable guidance for making informed decisions and shaping the future of hotel management in Asia Pacific.

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