A simple proposition for an afternoon discussion at SEAHIS 2017 at the Dusit Thani Hotel in Bangkok: resorts are a significantly better financial investment than city hotels in SE Asia. The format was also straightforward: Neil Jacobs, CEO of Six Senses, and Bruce Bromley, CFO of Soneva would make the case for resorts; Paisit Kaenchan, CEO of Grande Asset, and Ron Barrott, CEO of Pro-invest, would prove them wrong. Egging them on was HOFTEL Chairman, Simon Allison, who took a straw poll of the audience before a shot was fired and found opinion fairly evenly divided.

The debate opened with, as Bruce would have it, “the facts”. Firstly, resorts offer substantially better returns than city properties; the investment yield is superior and the asset costs are lower. Secondly, cities present a structural weakness; in Bangkok, more than half of the fresh supply is in the luxury category, driven partly by sky-high land prices. While customer demand may be stronger for mid-market hotels, these can’t generate the returns required to justify the asset cost. This mismatch is likely to keep high-end rates firmly in check, while Airbnb steps in to meet customer needs. Resorts, in contrast, already offer a RevPAR premium of 10-15% over their city rivals. Thirdly, resorts can benefit from lower labor costs away from the cities, while remoteness need not be a weakness since it can drive the kind of innovation that leads to competitive advantage. Furthermore, remoteness keeps customers on site, ensuring that every element of the content provided by a resort can add to the bottom line.

Next to speak was Ron, whose counter-argument presented different facts, while insisting that Bruce’s facts were wrong. Ron explained that resorts were a terribly risky proposition because they relied solely on tourists, who could be notoriously fickle when faced with adversity. City properties, in contrast, could rely upon a much more varied stream of guests who would visit for a wide range of different reasons. Demand would thus be more stable, less subject to seasonal fluctuations, and more resilient in times of crisis. This gives city assets much greater flexibility, and this is never more important than when it is time to sell. A city property can be sold and readily converted to different uses if need be. A resort does not have this kind of flexibility, and can thus be very hard to sell if times are hard. Investors must consider this aspect of the risk, and take care not to be seduced by the lure of greater returns. It is this lack of alternative use in the case of resorts that causes the tendency for institutional investors to be wary. With his audience almost convinced, however, Ron then let slip that this was just a matter of investor preference, and that urban resorts might be the way to go.

Neil was then invited to enter the fray and duly pointed out that seasonality is not the problem it had once been for resorts, and one reason for that is the advent of new source markets which provide a year-round stream of visitors. He then attempted to play the emotional card, asking the audience to imagine investing in a city center warehouse conversion project in Manila, or in a luxury Bora Bora hideaway, with hammocks, cocktails, and gently lapping waves. His ploy might have succeeded, but Ron promptly proposed the simple and pragmatic alternative of investing in the city hotel and retiring to Bora Bora on the proceeds.

With the tide turning against the resorts, Paisit was the last to speak, with the opportunity to twist the knife. He began by addressing the issue of land prices, noting that while city center costs were indeed higher, resorts required far more land than an urban development, and the construction costs in a resort location would be far higher. Better construction deals were to be found in the cities. The next problem faced by resorts was that visitors would be unlikely to visit sufficiently often to ensure a reliable client base. The Maldives, for example, might be a once-in-a-lifetime destination, whereas cities could be visited much more frequently and for various purposes. Furthermore, an adverse news event could dramatically disrupt a resort’s business for several months, while cities are much more resilient.

One further advantage for cities is that they are often gateways, with frequent and comprehensive air connections supplying traffic. In contrast, resorts are remote and need a deliberate effort on the part of visitors to get there. For this reason, a resort needs significant worldwide recognition to attract visitors, whereas in contrast, everyone has heard of the world’s major cities. In addition, the city has one more advantage up its sleeve; city hotels often welcome non-guests to use the restaurants and facilities, adding to the revenue potential. Resorts rarely attract non-guests, and thus miss out on this opportunity. Finally, the idea that Airbnb is a threat to city hotels and not to resorts on account of the service experience a resort can offer was also rebuffed. With a growing number of second homes and residences fuelling construction booms in resort destinations, it can be expected that many of these properties will be available through Airbnb in the future, chipping away at the market currently served by resort hotels.

In conclusion, resorts bring superior returns during the good times while city properties appear to offer lower risk. Selling resorts is very hard unless they’re making money, while in the city, flexibility is everything. The choice may depend more upon the type of investor than the type of property. But what did the audience think? Simon asked the question for a second time at the very end – and the audience remained divided, though perhaps leaning slightly towards Ron, Paisit, and the city.