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Investor appetite for Singapore's hotel market to stay healthy

Outlook is bright with increase in tourist arrivals and initiatives to develop new attractions and rejuvenate existing ones.

AFTER achieving a five-year record high of S$1 billion in 2018, the Singapore hotel investment market has remained upbeat for 1H 2019 with four major transactions comprising a total transacted value of S$1.35 billion. Transactions in 1H 2019 include the following:

  • April: 25 per cent stake in 575-key Marina Mandarin acquired by Singapore-based United Industrial Corp at S$190 million, reflecting the hotel value at S$760 million (S$1.3 million/key)
  • May: 146-key Ascott Raffles Singapore acquired by private investor Cheong Sim Lam for S$353.3 million (S$2.4 million/key)
  • June: 90-key Claremont Hotel Singapore acquired by Singapore-based luxury hotel group,Garcha Hotels, for S$70 million (S$0.78 million/key)
  • June: 241-key Ibis Novena acquired by Bangladeshi-based industrial conglomerate, S Alam Group, for S$170 million (S$0.71 million/key)

Kicking off 2H 2019, the latest July transaction at S$235 million (S$0.74 million/key), involves Singapore-based Datapulse Technology and PAM Holdings I (BVI) Limited acquiring the 319-key Bay Hotel Singapore, with 5 per cent and 95 per cent stakes respectively.

Based on the major hospitality asset transactions that we have noted, we observe that the publicly available expected yield ranges between 3 per cent and 5 per cent.

The total transacted value in 1H 2019 has tripled from 1H 2018, which registered about S$407 million. This is mainly attributed to a higher number of transactions of full-service properties with larger inventories as compared to 1H 2018 which recorded more transactions for limited service properties with smaller inventories.

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Hotel properties currently on sale include:

  • 518-key Mercure Singapore and 254-key Novotel Singapore on Stevens
  • 342-key Andaz Hotel Singapore
  • 72-key Fraser Residence Singapore at Mount Elizabeth

Growing interest in acquiring sites for hotel use

In March 2019, the Urban Redevelopment Authority (URA) offered an increase in gross plot ratio for areas within the Central Business District to encourage conversion of existing office developments to hotel uses.

In January 2019, Midtown Development, a subsidiary of Singapore-based Worldwide Hotel Group, acquired a Club Street site at S$562 million (S$2,148.50 per square foot per plot ratio on a maximum gross floor area of 24,310 square metres) for future hotel development.

In March 2019, Singapore-based real estate developers, Peak Tower Corporation acquired the freehold mixed development Selegie Centre at S$120 million and is currently seeking approval from URA to rezone the site for hotel use.

The above transactions point to a rising interest in acquiring sites for hotel use; conversion of commercial sites and development of greenfield sites.

An anticipative outlook

In 1H 2019, the Singapore Tourism Board (STB) recorded moderate year-on-year (y-o-y) growth in tourist arrivals. Year-to-date (YTD) May 2019 arrivals of 7.77 million surpassed the same period last year by 1.5 per cent. However, the pace in visitor arrivals was lacklustre as compared to the growth in YTD May 2018 of 7.7 per cent.

Heightened geopolitical uncertainties are contributing to the slowdown in growth: trade tensions, Brexit, new policy agendas, the future of Iran's and North Korea's nuclear programmes, and the growth of protectionism. As at YTD May 2019, Singapore recorded a decrease of 0.4 percentage points (pp) in occupancy and a moderate increase of 0.6 per cent in average daily rate (ADR) y-o-y, with an average occupancy of 84.7 per cent and an ADR of S$218. This translates to a revenue per available room (RevPAR) of S$185, unchanged from the same time last year.

Overall growth in RevPAR is mainly led by the luxury hotel segment, which registered an increase of 1.4 pp in occupancy and 1.4 per cent in ADR. Despite an increase in new supply, occupancy performance has been resilient due to a healthy growth in visitor arrivals.

Going forward, we remain sanguine on Singapore's tourism outlook and investor's appetite due to the country's robust standing as a prominent business events destination, a City in a Garden, a global metropolis, a food paradise and an attractive tourist destination.

Apart from forging new partnerships and collaborations, there have also been ongoing initiatives to target new visitor segments with higher tourist spending, and drive Singapore's tourism sector by developing new attractions and rejuvenating existing attractions. These include the opening of Jewel Changi Airport, the upcoming Terminal 5, Orchard Road's rejuvenation project, Mandai eco-tourism project, Jurong Lake District's new tourism hub project, Greater Southern Waterfront project, as well as redevelopment plans for Pulau Brani and Sentosa.

Keeping up with trends

Many hotels are responding to the new generation by revamping the design to include a myriad of features and amenities, including photo-friendly spaces, communal spaces, immersive local flavours, latest smart technologies, seamless solutions with artificial intelligence and environmental sustainability.

Another notable trend is the rise of travellers seeking experiences with more hotel-organised activities on and off-property. This may include local workshops, classes, excursions, sightseeing and personalised in-room services. Event venues are also evolving from traditional room layouts and floor plans to innovative customisation such as projection mapping, open-kitchen cooking and flexible spaces.

Within the last two years, the market has also witnessed unprecedented activity with the debut of several co-living startups and millions of dollars of funds injected for further expansion. This concept of home-sharing has evolved with the growth of the sharing economy and increase in mobile jobs, and has become a rising trend in gateway cities where accommodation costs are high.

Singapore-based co-living operators The Ascott Limited and Hmlet have tapped the trend with 843 and 1,000 new rooms respectively in the pipeline over the next three years.

For 2H 2019, 260 rooms are anticipated to enter the pipeline, including the 208-key Dusit Thani Laguna Singapore, 40-key The Barracks Hotel and the expansion of Raffles Singapore with 12 additional suites. As at 1Q 2019, about 3,000 rooms are expected to enter the pipeline in the next four years, with the majority of the new supply in 2021 and 2022 representing about 2.2 per cent and 1.9 per cent of total existing supply respectively.

The latest release of 2H 2019 Government Land Sales Programme has revealed a new hotel site at River Valley Road which will be available in December. Spanning 1.07 hectares, the site can potentially yield about 560 rooms.

Singapore's hotel market is a tightly held market with limited stock for sale and with high demand. Investor appetite is expected to remain strong and prices firm.

  • Chee Hok Yean is president (Asia Pacific) and Kok Xin is analyst (Singapore) at HVS