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Hotels face headwinds in H2 despite growth in visitor arrivals

Occupancy levels are healthy, but global economic risks and expected rise in new hotel rooms will create challenges
Saturday, October 1, 2016 - 05:50
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SLOWDOWN: One trend is that the growth in number of tourists from China has slowed since April. China is Singapore's biggest source market for visitors.

Singapore

THE hotel industry is likely to feel continued pressure this year, as a slowdown in the growth of visitor arrivals, economic headwinds and increasing hotel supply keeps hoteliers on their toes.

Still, the influx of visitors for this year as a whole is expected to surpass - or in the worst case, match - the 15.2 million travellers that came to Singapore last year, say market watchers.

Preliminary data from the Singapore Tourism Board (STB) showed that industry-wide hotel occupancy for the January-to-July period remained strong at 85 per cent, inching up 0.6 percentage point year on year.

However, average room rate (ARR) slipped 3 per cent to S$235, which resulted in revenue per available room (RevPAR) dropping roughly 2 per cent to S$199.

In terms of RevPAR, midscale hotels were the only one to post marginal growth of 0.3 per cent; economy hotels experienced the biggest dip - 2.2 per cent - among the hotel categories.

A spokesman from CDL Hospitality Trusts (CDLHT) said: "Given the weak economic sentiment, the trading environment for Singapore hotels is likely to remain competitive for the rest of the year."

The spokesman pointed out, however that healthy occupancy levels and the growth in visitor arrivals were bright spots.

The Royal Plaza on Scotts hotel, for example, maintained its occupancy level, though its room rates have fallen 3-5 per cent from 2015.

Visitor arrivals to Singapore between January and July rose in the double-digits, expanding 11.5 per cent year on year to 9.79 million.

However, there are signs that the growth in arrivals from China - Singapore's biggest source market this year - has slowed down since April.

The number of visitors from China expanded only 26 per cent year on year in July, versus 75 per cent in April, 65 per cent in May and 53 per cent in June.

It remains to be seen whether September will register the same bump in tourist arrivals as previous years, given that attendance at this year's Singapore Formula One Grand Prix slid some 15 per cent on average. Tourists typically make up over 40 per cent of race-goers.

Meanwhile, data from Changi Airport Group this week showed that passenger traffic dipped 0.6 per cent in August, marking the first decline in traffic since January 2015.

Daiwa Capital Markets' analyst Royston Tan said passenger throughput at Changi will grow at a more benign pace of 2-3 per cent in the second half of the year; in the first half, it had grown 8 per cent.

CBRE Hotels executive director Robert McIntosh said: "The combination of a slower growth rate in arrivals, the increase in number of rooms and a shorter length of stay by some guests suggests continued pressure on hotel revenues, but not as much as in 2015."

For the full year, CBRE projects RevPAR to be at between S$200 and S$206, down from nearly S$209 last year.

"If a growth rate of over 8 per cent (in visitor arrivals) can be maintained, it will alleviate the pressure on occupancy levels," added Mr McIntosh. "However, the arrivals appear to be more cost-conscious than before."

Cushman & Wakefield's research director Christine Li said: "The performance of the hotel industry in H2 2016 is expected to remain sluggish."

Aside from a supply spike, smaller corporate travel budgets and the weak global economy, she also cited as contributing factors the currency depreciation in key source markets such as Japan, Australia and Malaysia.

Industry observers are also likely keeping a watchful eye for signs that the Zika outbreak, which emerged in late August, is discouraging tourists from coming to the city-state.

CDLHT said there has been no significant impact on its local hotels from Zika to date. Its spokesman said: "However, if the situation persists, it may affect visitor arrivals and hotel demand."

The Park Hotel Group, which is also not expecting any major fallout from Zika, remains bullish on its performance for the rest of this year.

The group's revenue director, Tejveer Singh, said: "Park Hotel Group's hotels have continued to perform strongly. With an increase in RevPAR from last year, all hotels have had consistent performance.

"We are getting feedback that tourists have confidence in Singapore's handling of Zika. Since we have a healthy mix of corporate and leisure guests, we continue to enjoy a healthy pace of bookings for our hotels."

Patrick Fiat, general manger of Royal Plaza on Scotts, expects business to hold firm in the fourth quarter, but said: "With a considerable percentage of visitor arrivals being leisure visitors, there is a need to increase visitor arrivals considerably to offset (room) supply increases. Also, procurement managers with corporate accounts are constantly seeking ways to cut costs."

New-room supply represents a challenge that the hotel industry will grapple with this year and the next. Supply this year is expected to expand by 7.5 to 8 per cent; next year, it will grow by around 4 per cent, CBRE estimates; it anticipates that revenue per room will recover in 12-24 months.

Cushman & Wakefield puts the number of rooms being added to the industry in the second half of this year at over 1,300; consultancy firm HVS estimates that 905 rooms will be added to the industry inventory in the fourth quarter alone.

There were 60,908 rooms in Singapore at end-December last year.

Hotels in the pipeline include Intercontinental Hotel Robertson Quay, Novotel & Ibis Stevens and Sofitel Singapore City Centre.

The rising popularity of Airbnb could also prove a downside risk, especially for economy hotels, suggested HVS (Asia-Pacific) managing partner Chee Hok Yean. "Then, even with an increase in tourist arrivals, especially leisure, hotel occupancy may be affected," she said.

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