Apac Hotel Management Agreements Now Average 17 Years Jll
Research conducted by JLL has revealed that the duration of hotel management agreements (HMAs) in Asia Pacific (APAC) is on the rise. The average term of HMAs has increased by four years since 2005, reaching 17.4 years as of 2024 as per the findings of a recent survey commissioned jointly by the real estate consultancy and legal firm Baker McKenzie. The survey analysed 400 HMAs signed in the last 20 years, including 145 agreements between 2018 and 2023.
Markets in the region have varying lengths for HMAs, with the Maldives and Japan typically opting for longer agreements of 26 and 23 years respectively, due to the presence of luxury hotel developments and owners who prefer to secure brands for a longer period. In contrast, Australia favours shorter agreements and unencumbered asset sales, resulting in an average HMA term of 15 years.
Despite a decline in management fees, HMAs in APAC have seen a trend of increasing duration, according to Xander Nijnens, senior managing director and head of advisory and asset management for JLL Hotels and Hospitality Group, Asia Pacific. “In most markets, we have observed hotel management fees decreasing, with more fees now linked to results against agreed performance thresholds, providing additional incentives for operators to deliver,” he explains.
The survey reveals a decrease in the average base fee for HMAs from 1.7% of revenue to 1.6% of revenue. However, the decline in management fees has been offset by higher sales and marketing fees charged by operators, programme fees, and other variable costs. There has been an increase in the number of operators charging sales and marketing fees of 3% or more on room revenue or total revenue compared to previous years.
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Besides fee structure, the survey also highlights the growing inclusion of performance termination provisions in HMAs. 93% of the agreements now include this clause, usually tied to metrics such as revenue per average room performance and gross operating profit.
JLL and Baker McKenzie predict a growth in alternative operating models for hotels in the coming years, with a rise in traction for white label operators, direct franchises, and ‘manchises’, a term used for HMAs that include an option to convert into a franchise arrangement. As the hotel markets in APAC mature, HMAs are expected to become more flexible, incorporating provisions for sustainability and termination options to maximize the value of hotels, says Nijnen. “Owners are becoming increasingly knowledgeable in their management contract negotiations and carefully considering their branding and operating models.”