The Asian country is set for a 28% increase in hotel rooms, due to a growing economy, new gaming and entertainment projects and interest among global hotel companies.

The Philippines is in the middle of a hotel development boom. According to STR Global, a sister company of Hotel News Now, 13,564 hotel rooms are in the Philippines development pipeline. If they all open, the country’s inventory will increase by 28%, and more than three-fourths of the pipeline, or 10,559 rooms, are in Manila, the capital.

Several factors—including a strengthening economy and new development in the gaming sector—are driving the boom, sources said.

“Recent activity within the hotel property market has been driven primarily by the gaming sector, which is currently being developed in Manila’s Entertainment City along Manila Bay,” said Nihat Ercan, executive VP, investment sales, Asia, for JLL Hotels & Hospitality Group. “Key players behind Resorts World and the City of Dreams are investing heavily in the development of their respective integrated resorts, aiming to compete in the casino ring on a regional and global scale.”

In February, Melco Crown Resorts and partners opened the $1-billion City of Dreams Manila, an integrated gaming, entertainment and shopping project that has three hotels, including the first Nobu- and Hyatt-branded properties in the country. The development is near Resorts World, another gaming-centric entertainment and hotel complex that opened in 2009.

“Over the past few years, the Philippines’ tourism industry has witnessed consistent growth, which has in turn supported the steady growth of the hotel sector,” Ercan said. “With the government taking necessary steps to promote Philippines as the leisure, gaming and (meetings, incentives, conferences and exhibition) destination of choice and with a highly popular marketing campaign in place, the country is starting to reap the benefits of its natural and cultural resources, both in terms of visitor arrivals and visitor spending.”

Occupancy in the Philippines was 67.2% in 2014, up 4.3% over the previous year, according to STR Global. Revenue per available room increased 6.6% last year, following a 2.9% decrease in 2013 and a 0.4% increase in 2012.

A rising economy

According to a Bloomberg report, a survey of economists forecasts the Philippines economy to grow by more than 6% in 2015, which among world economies is second only to China’s 7% growth projection. This economic upturn is helping to grow the country’s middle class, said Thorsten Kirschke, president of Asia/Pacific for Carlson Rezidor Hotel Group.

“This growth in the middle class is spurring more domestic travel, and we see the potential of mid-scale brands, like our Park Inn by Radisson, in tertiary cities,” Kirschke said in an email message. The company operates a Radisson Blu in Cebu and a Park Inn in Davao and will open another Park Inn in Clark in 2016.

JLL’s Ercan said he expects brands to pursue development in markets other than Manila.

“The majority of other destinations around the country have few to no international brand hotels, with local brands and budget alternatives being the preferred option among domestic travelers,” he said. “We see this trend changing in the coming years as more foreign brands expand their presence in the country, going after secondary cities and resort markets.”

Other global hotel companies are also taking aim at the country. Marriott International, which operates two hotels in the Philippines, has three projects under development, said Paul Foskey, executive VP for development in the Asia/Pacific, in an email message. They are an expansion of a Marriott-branded convention hotel in Manila, a new Courtyard by Marriott in Iloilo and a JW Marriott & Spa in Palawan. All three are scheduled for completion by 2017, Foskey said.

“The Philippines is a convenient hub in Asia,” said Glenn Nakamura, area developer at Best Western for Hawaii, Guam, Saipan and the Philippines. “Within a 4-hour radius (by air) you can be in China, Korea, Indonesia and the other countries in southeast Asia.”

Best Western has had a presence in the country since 1989, Nakamura said, with nine properties open and five more under development. He said the country’s ties to the United States are another advantage for hotel developers.

“Because of our strong history with the U.S. government, everything is done in English, including contracts and banking,” he said. “With a few nuances, the legal system is very close to the U.S. standard, and this makes it easier for investors to come into the country.”

Wyndham, which has 19 hotels in the Philippines, expects to add properties in the country in the coming years under several brands. Its roster includes 13 Microtel Inn & Suites by Wyndham, five Days Inn properties and one Ramada.

“As one of southeast Asia’s fastest-growing economies, the Philippines offers strong potential for us,” said Barry Robinson, president and managing director, Southeast Asia and Pacific Rim, for Wyndham Hotel Group. “We see plenty of locations in the Philippines where demand indicators lead us to believe markets are ripe for further development.”

He said future growth will probably come through Wyndham’s existing flags in the country, as well as its Tryp by Wyndham brand.

Slow to evolve

While the Philippines is attracting interest from hotel developers, the country still lags some other Asian markets as a destination.

In 2013, travel and tourism accounted for 4.2% of the country’s gross domestic product, which on a relative basis ranked 70th of 184 countries covered in a World Travel & Tourism Council study.

Even though visitation to Thailand fell 6.7% last year due to political unrest, the country received 24.8 million international arrivals. That compares to 4.8 million arrivals to the Philippines, which was up 3.3% over the previous year. With a population of 68 million, Thailand has 171,899 hotel rooms and 14,619 rooms in the pipeline. The Philippines has a population of 98 million with 48, 157 rooms.

Bangkok has 75,719 rooms with nearly 6,000 rooms in the pipeline, while Manila has 27,393 rooms.

Kirschke believes the Philippines has potential to close the tourism gap with its Asian neighbors.

“Philippines’ tourism market is at its nascent stage and has great growth potential,” he said. “The future looks promising with the government’s recent investment efforts in infrastructure projects to improve accessibility and commitment to market the country. One of the things that can further boost hotel development is to incentivize developers to make it more attractive.”

Barriers to development

Infrastructure was one of several challenges to hotel development in the country mentioned by sources.

“Two primary drawbacks are the infrastructure contstaints and perceived security issues,” Ercan said, citing congestion and connectivity challenges at the Manila airport. “While the vast majority of regional destinations within the country are not able to accommodate larger international jets, some areas such as Boracay, Palawan and Bohol are starting to address this issue.”

He said while the country has enjoyed a long stretch of political and economic stability, “isolated unrest in the far southern part of the country continues to overshadow strides taken by the Department of Tourism to promote a safe experience in the rest of the country.”

Nakamura of Best Western said land ownership laws in the Philippines are another hurdle for developers to overcome.

“The biggest challenge (to development), and it depends on the company and how much chance they want to take, is the issue of land ownership,” he said. “Land can only be held 40% by a foregn entity so a developer must have a high level of trust with their local partners to proceed on a project.”

Original article: Hotel News Now