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Singapore's tourism industry set to finish 2017 on strong note

Growing arrivals from China a major driver, but retail industry continues to grapple with weakness, despite improving economy

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With the festive period under way, Singapore's tourism industry looks poised to finish the year strong, bolstered by growing arrivals from China.

Singapore

WITH the festive period under way, Singapore's tourism industry looks poised to finish the year strong, bolstered by growing arrivals from China.

But the retail industry, on the other hand, continues to grapple with weakness, despite the improving economy.

According to preliminary estimates from the Singapore Tourism Board (STB), the nation received about 13.05 million visitors in the first three quarters of 2017, up 5 per cent year-on-year. Arrivals from China - which outpaced Indonesia - shot up nearly 10 per cent to some 2.49 million travellers, as the STB's efforts to better engage Chinese visitors and reach out to more second-tier cities appear to be paying off.

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Arrivals from Indonesia, which has traditionally been Singapore's top source market, were lower than China's at 2.17 million. However, this was still an increase of 2 per cent year-on-year compared to the corresponding nine months in 2016.

Bolstered by regional demand for travel, the STB had forecast arrivals of 16.4 million to 16.7 million for 2017 as a whole, while tourism spend is expected to come in at between S$25.1 billion and S$25.8 billion.

However, if arrivals continued at this pace in the final quarter of 2017, Singapore could surpass the 17 million visitor threshold this year.

OCBC Bank's head of treasury research and strategy Selena Ling said: "Visitor arrivals growth should remain healthy into 2018, as the easing headline GDP growth (in China) is unlikely to fully curb the Chinese appetite for overseas travel."

The restrictions placed by the Chinese government on travel to South Korea could also mean spillover benefits for Singapore, added Vishnu Varathan, head of economics and strategy at Mizuho Bank. However, both economists highlighted that global competition for the tourist dollar is heating up, which could present a challenge for Singapore's tourism industry.

In the hotel industry, STB's data show that total room revenue for the first nine months of 2017 fell 2 per cent year-on-year to some S$2.39 billion. Revenue per available room (RevPAR) for the nine-month period was flat at S$201, as a slight decline in average room rate (ARR) was offset by a marginal increase in average occupancy (AO). Amid increased supply, industry-wide ARR dipped around one per cent to S$233 while the AO rate edged up one percentage point to 86 per cent.

Across the hotel categories, economy hotels had the biggest growth in RevPAR, clocking a more than 5 per cent increase to about S$85. Economy hotels and luxury hotels were the only segments to register increases - albeit marginally - in ARR, which rose 1.3 per cent to S$102 and 0.2 per cent to S$446 respectively. Meanwhile, upscale, mid-tier and economy hotels all chalked up increases in AOR, with economy hotels again seeing the biggest jump. However, luxury hotels had a slight 0.7 per cent dip to 85 per cent.

CBRE Hotels (Asia-Pacific) projects occupancy for 2017 as a whole will clock around 85 per cent, up almost one percentage point from 2016.

"This has been driven by a strong growth in visitor numbers, which will exceed 17 million," said Robert McIntosh, executive director of CBRE Hotels. "However these visitors are spending less time here so the growth in arrivals has resulted in a lower rate of growth in room nights sold. The result is that room rates have declined marginally and therefore the revenue per room has been flat."

The supply of new hotel rooms is also expected to taper in 2018, which should provide some relief. Research from CDL Hospitality Trusts (CDLHT) - which incorporated data from consulting firm Horwath and the STB - projects that the supply pipeline would ease to 1.7 per cent and 1.8 per cent in 2018 and 2019 respectively

"Occupancy is likely to fall slightly and room rates are forecast to stabilise," said Mr McIntosh. "The declines of the last few years appear to have stopped, provided the economy and the visitor numbers can keep growing." Corporate demand will also likely pick up next year, he added, although companies are increasingly placing employees on short-term projects, which means a reduction in the length of stay.

For the local retail industry, which is dealing with headwinds such as high operating costs and competition from online shopping, the picture is slightly less rosy for the fourth quarter of this year.

In the third quarter of 2017, retail sales rose 0.9 per cent year-on-year - similar to the one per cent seen in Q3 2016 but a slowdown from 1.4 per cent in Q2 2017, Ms Ling highlighted. For October alone, retail sales fell 0.1 per cent. Ms Ling said: "This suggests that there may not be significant cheer for the peak year-end season on the domestic consumption front, especially since many Singaporeans usually travel during the school holidays, in addition to medium-term structural changes like e-commerce."

The improving Singapore economy has yet to filter down to the headline retail figures, at least not compellingly, Mr Varathan noted. Nonetheless, the pick-up in economic growth and "exuberant" stock market conditions could have boosted retail sales for certain segments, he also pointed out. For instance, sales of luxury goods such as watches and jewellery have risen more than 5 per cent for January-October in both real and nominal terms. Looking ahead to 2018, "rising energy prices and food costs could start to dent discretionary income (of locals), especially if rising interest costs begin to be felt by households with financing commitments", cautioned Mr Varathan.

One potential bright spot for the retail industry, however, could be tourism spend, which could help to dispel some of the gloom.

In H1 2017, tourist shopping receipts jumped by a solid 20 per cent, while total tourist receipts rose at a slower 10 per cent. The Chinese emerged as the biggest spenders.

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