Apac Hotel Management Agreements Now Average 17 Years Jll
Hotel owners in Asia Pacific (Apac) are signing longer Hotel Management Agreements (HMAs) according to recent research by real estate consultancy JLL and legal firm Baker McKenzie. The average duration of HMAs has increased by four years since 2005 and is expected to reach 17.4 years by 2024.
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The study, which analyzed 400 HMAs over the past 20 years including 145 contracts signed between 2018 and 2023, found that the length of HMAs varies across different markets. Markets with more luxury hotel developments and owners who prefer to secure branded hotel companies for longer periods, such as the Maldives and Japan, have an average HMA length of 26 and 23 years respectively. In contrast, Australia prefers shorter agreements and unencumbered asset sales resulting in an average HMA term of 15 years.
Xander Nijnens, senior managing director and head of advisory and asset management for JLL Hotels and Hospitality Group, Asia Pacific, notes that despite a decline in management fees, the duration of HMAs in the Apac region has continued to increase. “In most markets, we have seen hotel management fees come down. Additionally, fees are increasingly linked to performance thresholds, incentivizing operators to deliver results,” he adds.
The survey shows that the average base fee in HMAs has decreased from 1.7% to 1.6% of revenue. However, this decrease is offset by higher sales and marketing fees, program fees, and other variable costs charged by operators. The survey also found that a larger proportion of operators are now charging sales and marketing fees of over 3% on room revenue or total revenue.
One of the significant changes observed in the last 20 years is the inclusion of performance termination provisions in HMAs. Currently, 93% of contracts include this clause, usually tied to metrics like revenue per average room and gross operating profit.
JLL and Baker McKenzie expect a rise in alternative operating models for hotels, including the growth of white label operators, direct franchises, and “manchises” (HMAs that include an option to convert to a franchise arrangement). As the Apac hotel market matures, HMAs are expected to become more flexible, incorporating provisions for sustainability and termination options to optimize the hotels’ value. “Owners are becoming increasingly knowledgeable in their management contract negotiations and carefully considering branding and operating models,” says Nijnens.