Luxury hotels do fine despite fewer tourists

More competition for mid-tier hotels; slump in visitor arrivals from big China market

[SINGAPORE] The hotel industry is experiencing some softness this year, in line with the sluggish growth in tourist arrivals, but luxury hotels are bucking the trend and pulling off strong growth.

A slump in visitor arrivals from Singapore's second biggest source market, China, is dragging down overall tourist numbers while increased competition from new hotels is contributing to a challenging environment for the hotel industry.

For January to May, preliminary estimates from the Singapore Tourism Board (STB) show, visitor arrivals declined 1.7 per cent to 6.33 million as visitor arrivals from China plunged some 27 per cent. In contrast, overall visitor arrivals in Singapore were up 7.4 per cent for 2013 as a whole.

The drop in Chinese visitors has been deepening too, from a near 20 per cent year-on-year contraction in March, to some 45 per cent in April and close to 52 per cent in May.

The disappearance of Malaysia Airlines Flight MH370 in March has dampened tourism demand from Chinese tourists, who typically travel to Malaysia, Singapore and Thailand as part of a multi-destination tour. Analysts have also said that jitters in the wake of the fatal MH17 crash in Ukraine last month could affect travel volumes between South-east Asia and Europe.

In the first half of 2014, the industry-wide average room rate (ARR) climbed 1.2 per cent year-on-year to S$257.70, while average occupancy slipped 1.2 percentage points to 84.7 per cent. This caused revenue per available room (RevPar) to emerge more or less flat at S$218.40, down 0.2 per cent.

Luxury hotels are, however, doing well with a 7.8 per cent rise in ARR to S$458.30. Economy hotels, too, edged up 6.6 per cent to S$107.60. Upscale and mid-tier hotels, on the other hand, slid 0.5 per cent and 0.6 per cent respectively to S$266.30 and S$188.30.

Similarly, luxury hotels reported the strongest growth in RevPar, climbing 8.5 per cent to S$403.90, while economy hotels saw a more muted 1.2 per cent growth to S$86.80. The RevPar for upscale hotels inched up 0.4 per cent to S$229.60, while RevPar for mid-tier hotels declined 4.1 per cent to S$156.20.

In terms of occupancy levels for the first half, average occupancy for luxury hotels was 88.1 per cent followed by upscale hotels at 86.2 per cent, and mid-tier (82.9 per cent) and economy hotels (80.7 per cent).

Mid-tier and economy hotels - tiers which have seen strong supply increases in the last 12-18 months - experienced bigger drops in occupancy.

Despite the flat growth in visitor arrivals, one bright spot is that room nights occupied were up 5 per cent in January-April - suggesting guests are either spending more days in Singapore or a larger proportion of travellers are now staying in hotels, said Robert McIntosh, executive director at CBRE Hotels. "This is helping to balance the increases in supply which will continue, particularly in the mid-tier and economy segments."

Akshay Kulkarni, Cushman & Wakefield's regional director for hospitality (South-east Asia), reckons the robust demand for luxury-tier properties stems from a rising number of corporate travellers as well as the relatively limited supply of luxury hotels.

This year, Cushman & Wakefield expects a 2 per cent rise in average daily rate over 2013 to S$263 underpinned by the luxury and upscale segments, while industry-wide occupancy is expected to fall 3.3 percentage points to 83 per cent due to increased supply and little growth in tourist arrivals.

Mr Kulkarni said RevPar could slip 2 per cent this year. He projects that while visitor arrivals to Singapore could pick up in the second half, visitor arrivals are likely to total 15.8-16.3 million for 2014, which suggests the final tally could possibly fail to meet STB's 16.3-16.8 million forecast.

CBRE Hotels too has revised its projections for visitor arrivals in Singapore downwards, but still estimates growth of 1-3 per cent above the 15.57 million seen in 2013.

Singapore's new Sports Hub will hold several major events this year, including the Women's Tennis Association Championships, and this could help attract tourists. Meanwhile, CBRE is expecting industry-wide RevPar this year to clock either flat growth or little growth of up to 2 per cent.

"The political situation in Thailand is beginning to settle down and there are new efforts aimed at promoting tourism," said Mr McIntosh. "The issues in Vietnam have yet to be resolved, and we expect this to be a continuing drag on the market. The very unfortunate events in Ukraine have not helped traveller confidence but we expect that to correct itself in relation to this region fairly rapidly. Overall, there will be some spillover into H2."

Citing data from STB and Horwath, CDL Hospitality Trusts said in its Q1 results that the operating environment will remain competitive due to the injection of new supply this year.

CBRE Hotels estimates that some 1,140-1,740 rooms will come onstream in 2H14 - depending on date of completion - while Cushman & Wakefield projects 1,650 rooms from seven upcoming hotels, including Holiday Inn Express at Havelock, Traders Orchard Gateway Hotel and One Farrer Hotel & Spa. By Cushman and Wakefield's reckoning, some 1,300 rooms from five hotels were injected into the market in the first half of the year.

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