During the Vietnam War, U.S. prisoners of war used to refer sarcastically to the infamous Ho Loa prison as the “Hanoi Hilton.” Today, there is a real Hilton in Hanoi — the 269-room Hilton Hanoi Opera Hotel — and Vietnam is home to one of the fastest-growing hotel sectors in Asia.

A fast-growing economy and gorgeous beaches have propelled Vietnam hotels into the top third of all Asian countries by occupancy rate, room rates, and revenue per available room (RevPAR), according to Lodging Econometrics based in Portsmouth, N.H. “Five-star positive,” is how Patrick Ford, the company's president, describes the market environment.

In Vietnam's two biggest markets, most numbers are positive. In Hanoi, the capital, the average room rate rose 39% between January and April to $152.62. Meanwhile, RevPAR rose from $95.48 to $109.18. Room rates have also soared 40% this year in Ho Chi Minh City to $171.44 as of April, according to the Deloitte STR Global HotelBenchmarking Survey.

Development booms

Vietnam now has the fourth largest hotel development pipeline in Asia, with 61 projects totaling 16,704 rooms on the way, including 16 already under construction, reports Lodging Econometrics, which tracks all pending deals, from announcement through construction.

InterContinental Hotels & Resorts has announced plans to operate a hotel in the upper stories of the 70-story Keangnam Hanoi Landmark Tower. Set to open in 2011, InterContinental Hanoi Landmark will feature 383 rooms and suites and 300 serviced residences. The tower will be the tallest in Vietnam and among the top 20 tallest buildings in the world.

Aside from Hanoi in the north and Ho Chi Minh City (the former Saigon) in the south, hoteliers also are excited by the prospect of resorts along Vietnam's long, beautiful coastline, especially around the port of Danang. For all the talk of business prospects, tourists still dominate most foreign travel in Vietnam. In 2007, there were 2.6 million tourists compared with 673,000 business travelers, according to a Grant Thornton survey.

Pundits often refer to Vietnam as “the new China” because some manufacturers are relocating there from China in pursuit of even lower wages and lax environmental regulation. But the analogy is not quite right, experts say. While both countries embrace capitalism, Vietnam has only 84 million people compared with China's 1.3 billion, so the manufacturing opportunities in Vietnam are more limited.

The weak infrastructure and murky legal system remind some industry veterans of the situation in the 1980s and '90s in China. “I think some of the challenges that we face in Vietnam are more or less the same challenges we faced when we developed in China many years ago,” says Stephen Young, senior vice president for international development of the Wyndham Hotel Group.

For hotel operators, finding top-notch management is another big concern. “The greatest challenge, as in other parts in Asia Pacific, will continue to be talent recruitment,” predicts Tony South, senior vice president for development and asset management for IHG Asia Pacific.

Low transparency

As with most emerging markets, Vietnam isn't short of risks for developers. Jones Lang LaSalle (JLL) rates the Communist country as one of the world's least transparent markets. In its report, Emerging Trends in Real Estate Asia Pacific 2008, the Urban Land Institute pointed out that there still isn't even a way to record title. But the situation does seem to be improving. In 2006, JLL rated Vietnam the least transparent of all 77 markets it tracked; now it's sixth from the bottom.

On the bright side, American developers don't seem to face more risks in the market than other foreigners. The Vietnamese seem to have surprisingly few hard feelings, despite the long-running war in which the Vietnamese government estimates 5.7 million Vietnamese died.

“No, they love Americans,” says Ken Atkinson, managing director of Grant Thornton Vietnam, the local branch of the global accounting firm and consultant. “I suppose one of the reasons is that 65% of the population is under the age of 35, but no, they're just very pragmatic.”

Bennett Voyles is a veteran commercial real estate reporter and National Real Estate Investor's Paris correspondent. For questions or comments, e-mail benvoyles@yahoo.com.