The average room rate of three- to five-star hotels was more than VND1.914 million (US$84) in the first six months of the year, a decrease of 11.3 per cent compared to 2014, according to the city’s Department of Tourism.

The average occupancy rate for four- and five-star hotels rose to 85 per cent from 70 per cent of the same period last year.

According to one five-star hotel, its current room rate is $112 compared to $130 of the same period last year.

The hotel market remains a lucrative business but the competition is fierce due to expanding room inventory, a manager of a downtown five-star hotel said.

“An increase of $2 in room rates will result in a fall in the occupancy rate,” the manager said.

From 2013 to 2016, the supply of four- and five-star hotels increased 20 per cent per year to meet international tourist demand for upscale resorts and luxury accommodation, according to Savills Vietnam, the property consultant.

HCM City has the largest hotel supply in Viet Nam, with approximately 16,000 three- to five-star rooms.

Over the next three years, the city expects to have 3,500 new rooms, a 22 per cent increase.

Besides an abundant supply of two- to three-star hotels, the growth of apartments and houses rented out to tourists has increased the competition in the hotel segment, experts in the hospitality sector said.

Lam Quang Huy, deputy general director of the Grand Hotel in HCM City’s District 1, said the hotel’s occupancy rate rose to 87-90 per cent in the last few months.

“The hotel is offering additional services to attract customers and maintain the room rate,” Huy said.

Travel firms said that around 70 per cent of tourists chose to stay at two- to three-star hotels as the difference of room rates between three-star and five-star hotels could reach 60-70 per cent.

Three- to four-star hotels usually sell at least 50-60 per cent of their rooms in advance to travel firms and offer flexible and incentive policies on room rates for them, a representative of TransViet Travel said.

As accommodation costs make up around 40-60 per cent of tour prices, tour operators often choose three- to four-star hotels with reasonable prices instead of five-star hotels. In the first nine months of the year, the city welcomed 4.2 million foreign tourists, a year-on-year rise of 16.6 per cent, according to the Department of Tourism. Tourism revenue was estimated at VND84.57 trillion ($3.72 billion), a year-on-year increase of 10 per cent. — VNS