Why franchising is rising in SE Asia: JLL report

SOUTHEAST ASIA - Hotel franchising is rapidly becoming a viable business model in Southeast Asia’s hotel real estate market post-COVID, according to a new report by JLL. 

The number of hotels operating under franchise agreements has doubled over the past decade, from 3% in 2014 to 6% in 2024, JLL reports. While this number is still small compared to other markets, the trend has been further driven by major hotel brands like Marriott International, Hilton, Wyndham Hotels & Resorts, Choice Hotels International and IHG Hotels & Reports shifting toward an asset-light strategy.

The report added that Thailand is especially poised to embrace the hotel franchising opportunities of the post-COVID era.

The franchise hotel model is much smaller in Southeast Asia compared to the growth in the U.S. and Europe because of numerous small local owners, a need for more options for third-party operators, and regulatory and legal barriers. According to the report, management contracts are the region’s most common model of hotel ownership but often result in radically different operations standards and inconsistent branding.

The report further suggests hotel owners must address the following before thinking about a franchise deal:

• Balance independence with brand recognition: owners must weigh the benefits of affiliating with a brand against remaining operationally independent. 
• Use asset enhancement initiatives (AEIs) to stand out: AEIs can allow owners to improve their assets and differentiate their property in the market. 
• Use data to analyze progress and market position: Owners must use benchmarks against industry standards to assess their performance and identify areas for improvement. 
• Streamline operations with multiple franchise hotels: Owners can achieve greater efficiencies over a portfolio of properties versus just individual assets, especially when centralizing operations under a single general manager or commercial team. 
• Seek alignment: Owners must ensure they are aligned with the brands and management companies in maximizing value, driving operational efficiencies, and creating value.

The report said the hospitality industry in the region is expected to continue to rebound this year, with RevPAR reaching 93% of pre-COVID levels by the end of 2023.