Over the years, the average length of hotel management agreements in Asia Pacific has seen a notable increase, now standing at 17 years compared to 13 years in 2005. However, significant variations exist across the region. Luxury hotel developments in the Maldives and Japan have witnessed longer average contract lengths of 26 and 23 years, respectively, as operators seek to secure their long-term presence in the markets. On the contrary, Australia favours shorter terms of around 15 years, driven by a preference for unencumbered asset sales and more flexibility in ownership.

A significant shift in the past two decades is the growing inclusion of performance termination provisions in management contracts, with 93% now incorporating these. These provisions typically rely on one or two performance criteria: comparing Revenue per Available Room (RevPAR) against a competitive set and comparing Gross Operating Profit (GOP) against budget, usually evaluated over two consecutive years. These provisions allow owners to terminate operators based on poor performance and to seek an alternate operating solution. Whilst now more prevalent, terminations are rare, and it is crucial for owners to carefully scrutinise the mechanism and exclusion provisions to determine their effectiveness.

The hotel industry in Asia Pacific has experienced significant changes in the way hotel management agreements are structured. This includes shifts in contract durations, fee arrangements, termination provisions, and financial contributions.

These changes, as well as increasing complexity in elements such as distribution, loyalty and brand attraction; have made selecting a hotel operator more complex. The market now offers a wide array of brands and operators, each with its own unique strengths and weaknesses. Owners must carefully evaluate the capabilities, support, and operating track record of potential operators – and critically select an operator that shares their values and vision for their asset.

Furthermore, negotiating hotel management contracts requires a keen understanding of the nuances involved. It is essential to consider not only the terms related to fees and contract duration but also the limitations and exclusions on the owner's rights. Additionally, certain mandatory system fees may be imposed by operators. These fees cover various services, technology platforms, and support systems provided by the operator and must be carefully evaluated during the negotiation process.

Given the complexities and high stakes involved in hotel operator selection and negotiation, it is important to have the support of experienced advisors and lawyers to ensure that your interests as a hotel owner are protected while creating the platform for a successful partnership.