Apac hotel management agreements now average 17 years: JLL
Hotel management agreements (HMAs) in Asia Pacific (Apac) are rising in length, according to research by JLL. Findings from a recent survey commissioned and published jointly by the property consultancy and legal firm Baker McKenzie identified that the average term of HMAs has already raised by 4 years ever since 2005 to reach 17.4 years since 2024.
JLL and Baker McKenzie also prepare for a rise in different operating models for hotels, with a development in grip for white tag providers, straight franchises and ‘” manchises”, the term for an HMA where an option to transform the HMA right into a franchise plan is involved.
The period for HMAs checked in Apac has trended upward regardless of a decline in management costs, states Xander Nijnens, top regulating director and head of advisory and asset management for LL Hotels and Hospitality Group, Asia Pacific. “In many markets, we have actually seen hotel managing costs reduce, and increasingly, charges are connected to outcomes opposing concurred performance limits, which make additional incentives for operators to function,” he includes.
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One more significant change observed in the past two decades is the addition of performance discontinuation provisions in HMAs. The study located that 93% of contracts currently include this stipulation, typically connected to metrics such as income per available area productivity and gross running earnings.
The survey analysed results from 400 HMAs over the past 20 years, including 145 deals signed between 2018 and 2023.
JLL emphasize that the size of HMAs signed in the region varies throughout the various markets. In the Maldives and Japan– markets with even more deluxe accommodation developments and owners who choose to lock in brands for much longer– the average HMA length stands at 26 and 23 years, specifically. On the other hand, Australia favours shorter agreements and unencumbered property sales, causing an average HMA term of 15 years.
According to the questionnaire, the average base fee in HMAs has actually declined to 1.6% of profits from 1.7% formerly. Even so, the loss in managing costs is significantly balanced out by higher sales and marketing fees billed by drivers, programme charges and some other variable prices, says Nijnens. The study found that a higher percentage of operators are billing sales and marketing charges of 3% or even more on room profits or complete revenue compared to past years.
As hotel markets in the Apac area mature, HMAs are expected to include even more adaptability, including arrangements for sustainability and termination possibilities, to optimize accommodations’ value, says Nijnen. “We are seeing proprietors become significantly savvy in their monitoring agreement negotiation and seriously consider their branding and running systems.”
