Apac Hotel Management Agreements Now Average 17 Years Jll

The length of Hotel management agreements (HMAs) in Asia Pacific (Apac) is on the rise, according to a recent study by JLL. The research, commissioned jointly with legal firm Baker McKenzie, revealed that the average duration of HMAs has increased by four years since 2005 to reach an average of 17.4 years by 2024.

The survey, which analyzed 400 HMAs from the past two decades, including 145 contracts signed between 2018 and 2023, also noted variations in the length of HMAs across different markets in the region. For example, in the Maldives and Japan, where there are more luxury hotel developments and owners prefer longer brand commitments, the average HMA length is 26 and 23 years, respectively. On the other hand, Australia tends to favor shorter agreements with the option to sell the asset independently, resulting in an average HMA term of 15 years.

According to Xander Nijnens, senior managing director and head of advisory and asset management for JLL Hotels and Hospitality Group in Asia Pacific, the duration of HMAs has been trending upward despite a decline in management fees. He explains, “In most markets, we have seen hotel management fees decline, and operators are increasingly being incentivized to perform through performance-based thresholds.” The survey also showed a decrease in the average base fee for HMAs from 1.7% to 1.6% of revenue, but this is being offset by higher sales and marketing fees, program fees, and other variable costs charged by operators.

One significant change observed in the past 20 years is the inclusion of performance termination clauses in HMAs. The study found that 93% of contracts now have this provision, typically based on metrics such as revenue per average room and gross operating profit. This further motivates operators to meet performance targets.

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JLL and Baker McKenzie also predict an increase in alternative operating models for hotels, such as white label operators, direct franchises, and “manchises,” which offer the option to convert the HMA into a franchise arrangement. As the hotel markets in the Apac region mature, HMAs are expected to become more flexible, including provisions for sustainability and termination options, to optimize the value of the properties. Nijnens notes, “We are seeing owners become more strategic in their management contract negotiations and carefully considering their branding and operating models.”