Hotel management agreements (HMAs) in Asia Pacific (Apac) are rising in duration, according to research by JLL. Findings from a recent survey commissioned and published jointly by the real estate consultancy and legal firm Baker McKenzie found that the average term of HMAs has increased by four years since 2005 to reach 17.4 years as of 2024.

The survey analysed findings from 400 HMAs over the past 20 years, including 145 contracts signed between 2018 and 2023.

JLL highlights that the length of HMAs signed in the region differs across the various markets. In the Maldives and Japan — markets with more luxury hotel developments and owners who prefer to lock in brands for longer — the average HMA length stands at 26 and 23 years, respectively. In contrast, Australia favours shorter agreements and unencumbered asset sales, resulting in an average HMA term of 15 years.

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The duration for HMAs signed in Apac has trended upward despite a decline in management fees, says Xander Nijnens, senior managing director and head of advisory and asset management for LL Hotels and Hospitality Group, Asia Pacific. “In most markets, we have seen hotel management fees come down, and increasingly, fees are linked to results against agreed performance thresholds, which create additional incentives for operators to perform,” he adds.

According to the survey, the average base fee in HMAs has come down to 1.6% of revenue from 1.7% previously. Still, the fall in management fees is increasingly offset by higher sales and marketing fees charged by operators, programme fees and other variable costs, says Nijnens. The survey found that a higher proportion of operators are charging sales and marketing fees of 3% or more on room revenue or total revenue compared to previous years.

Another major shift observed in the past 20 years is the inclusion of performance termination provisions in HMAs. The survey found that 93% of contracts now include this clause, usually tied to metrics such as revenue per available room performance and gross operating profit.

JLL and Baker McKenzie also anticipate a rise in alternative operating models for hotels, with a growth in traction for white label operators, direct franchises and ‘"manchises", the term for an HMA where an option to convert the HMA into a franchise arrangement is included.

As hotel markets in the Apac region mature, HMAs are expected to incorporate more flexibility, including provisions for sustainability and termination options, to optimise hotels' value, says Nijnen. “We are seeing owners become increasingly savvy in their management contract negotiation and critically consider their branding and operating models.”