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Vacation nation: Hotel investment in Singapore to get a boost in 2019

Sector's trading performance moving into an upward cycle amid ongoing efforts to keep Republic attractive to visitors.

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Hotel Indigo Singapore Katong (above), which leans heavily into the Peranakan influences of its surrounding neighbourhood, is one example of how hoteliers can go beyond just providing a room for their target travellers.

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The reopening of historic Raffles Hotel (above) this year comes amid a rise in luxury travel and growth in the high-end market.

ACCORDING to JLL's latest Hotel Investment Outlook for 2019, hotel transaction volume for Asia-Pacific will hit US$9.5 billion this year, an increase of 15 per cent from last year's US$8.3 billion. In comparison, hotel investment volume in Europe and the Middle East could soften five to 10 per cent while the Americas is projected to remain flat.

In Singapore, where the market is usually tightly held with limited formal opportunities, a series of transactions in recent months indicates greater investor appetite.

This includes the announcement of Ascott Raffles Place being sold to a private investor for S$353.3 million in January this year; as well as the sale of Wanderlust Hotel, Wangz Hotel and Darby Park Executive Suites totalling S$175.7 million in the second half of 2018.

In January, a hotel site in the Central Business District received a top bid of S$562 million from Worldwide Hotels Group Midtown Development. This translated to S$2,148.50 per square foot per plot ratio. Waterloo Apartments, in Singapore's Civic District, also transacted for S$131 million in what was effectively a land sale.

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Given the willingness of investors to pay more per square foot of land for greenfield development to get greater control over the construction of the building and subsequent branding rather than buy an already built hotel, it shows confidence in strong hotel performance in the medium to long-term.

While the recent March 1 increases in development charges may slow appetite for commercial developments or cause prices for land to moderate slightly, it is likely that deals for both operational assets and land in 2019 will continue, with transaction potential approaching US$2 billion for operational assets alone.

Red hot little red dot

Already considered a safe haven for real estate investment, the country's international standing received a boost with the first Trump-Kim summit and the release of Hollywood film Crazy Rich Asians, in which the city-state played a starring role.

The numbers back this up. Singapore Tourism Board (STB) revealed tourist arrivals reached a record 18.5 million, a 6.2 per cent bump from the year before. Ongoing efforts to keep Singapore attractive include the opening of Jewel Changi Airport by the first half of 2019, and plans to spice up Orchard Road as a lifestyle belt with pop-up experiential activities in April.

Singapore's hotel market attracted 6 per cent more tourists last year, driving positive revenue per available room (RevPAR) increases across all chain scales.

According to JLL Research, 344 rooms opened in 2018, which represented about 0.5 per cent of the existing supply as at the end of the year. While more than 1,800 rooms are expected to open in 2019, about 76 per cent of the upcoming supply is concentrated in the Sentosa and CBD-fringe area, which comprise mainly upscale and mid-scale hotels.

As STB forecasts visitor arrivals to reach 18.7 to 19.2 million in 2019, there will be a corresponding increased demand for rooms.

Room to grow

With hotel trading performance moving into an upward cycle, 2019 and 2020 will be an opportune time for investors to make their move due to the limited supply here, capitalising on the improved performance of hotels as seen in average room and occupancy rates.

There is significant appetite for hotels across various sectors, in particular mid-market and limited service hotels as well as shophouses with the potential for conversion. This is fuelled in part by the success and popularity of mid-tier and lifestyle hotels such as Yotel, which opened last year in Orchard Road.

Investors might also go after trophy assets here as the reopening of iconic grand dame Raffles Hotel mid-year brings attention to the allure of such properties.

Moreover, experiential luxury travel is on the rise. Recent global mergers and acquisitions (M&A) activity in the hotel space attest to that. The strategic acquisition of the Belmond collection of properties by French conglomerate LVMH announced last year to take advantage of that growth is likely to spur more action in the luxury market.

The big picture

Despite global geopolitical uncertainty with Brexit and trade tensions between China and the United States that could have ripple effects, the travel sector in Singapore and the larger South-east Asia region remains resilient due to strong fundamentals, including a growing middle class and millennial lifestyles.

All of these tailwinds are keeping Singapore on track for continued growth, but what other measures are needed to ensure the city stays vibrant and attractive to travellers?

One consideration is to offer more diverse options as travellers get increasingly savvy and crave more authentic and unique experiences.

The development of Mandai project as an eco-tourism hub is a start - although care must be taken to preserve the natural heritage of the area rather than create another artificial attraction. The continued popularity of in-destination activities among travellers such as sporting events and music festivals could be an area for Singapore to focus on.

As corporate demand is fundamental to the hotel market, how Singapore is evolving as a business destination is key, too. Singapore should go beyond its global finance centre status to become a tech and innovation hub in order attract more business travellers here for meetings and events.

It is also a positive sign that companies such as Dyson is moving its headquarters here and Cisco has set up its first South-east Asia innovation centre to work on regional cyber security issues.

Looking at the industry, while the number of rooms must catch up to meet pent-up demand, authorities will have to manage the long-term supply pipeline and the number of hotel licenses being granted to operators to prevent too many hotels from crowding the market in the future.

Hoteliers and owners, too, need to think beyond simply providing a room for their target travellers, taking into account guests' expectations and needs. More thought can be put into creating a sense of place in their hotel offerings.

An example of that would be Hotel Indigo Singapore Katong, which leans heavily into the Peranakan influences of its surrounding neighbourhood. Investing in technology or social spaces like a cafe with co-working facilities is another way to engage travellers for a longer and more fruitful stay.

Market ready

These upsides will sustain a relatively healthy investor interest in hotels in the country although much will still hinge on how the property is performing and the price that sellers are ready to transact at.

High seller expectations may result in investors looking at other gateway cities like London or Sydney. But there is no ignoring Singapore remains a great bet for investors who are looking to enter the hospitality market.

  • The writer is the senior vice president of investment sales in Asia for JLL Hotels and Hospitality.