Hotels a bright spot for Singapore property groups, for now

THE hotel and serviced-apartment sector was the only segment of the Singapore property market that elicited a strong positive outlook from respondents in the latest survey for the Real Estate Sentiment Index.

The sector recorded the only significant positive future net balance, +68 per cent, for the Q3 2022 survey, reflecting respondents’ outlook over the next six months.

This certainly sounds like good news for listed groups with significant exposure to the Singapore hotel market, such as CDL Hospitality Trusts (CDLHT), Far East Hospitality Trust , OUE Commercial Reit and UOL Group .

One veteran hotelier said the sector is “showing a magnitude of recovery that can only be described as robust, far exceeding expectations”.

“There is an element of revenge leisure travel, as well as meetings and events taking place in full force. The Singapore safety element (with regard to Covid handling) is also providing some allure,” he added.

Most respondents in the Q3 sentiment index survey, conducted by the National University of Singapore’s Institute of Real Estate and Urban Studies (IREUS), would have made their submissions in the first few weeks of October. Hotels in Singapore had just cheered a strong return of events in September, including Food & Hotel Asia and the 2022 Singapore Grand Prix. The revenue per available room (RevPAR) for Singapore hotels rose to an all-time high of S$236.52 in September, surpassing the previous high of S$225.89 in February 2014, according to data from the Singapore Tourism Board (STB).

Euphoria

JLL Hotels and Hospitality Group’s head of transaction advisory services, Calvin Li, suggested that the positive sentiment was due mainly to the euphoria induced by Singapore reopening its borders to vaccinated travellers in April this year. “The reopening of borders has also enabled major events to take place in the second half of the year, drawing a significant rise in international visitors,” he added.

Li pointed to STB data showing Singapore hotels’ RevPAR for January to September 2022 (9M 2022) was S$169.74, or 89 per cent of the figure for the same period in 2019 (during pre-Covid times). The average room rate (ARR) was higher, at S$233.96, for 9M 2022 versus S$218.63 for 9M 2019. But the average occupancy rate was lower, at 72.55 per cent for 9M 2022 versus 87.18 per cent for 9M 2019.

The recovery in the meetings, incentives, conferences and exhibitions (Mice) sector this year has also been a lot swifter than many had expected, Li said, and the tight labour situation has forced hotels to limit inventory and boost their ARRs.

The head honcho of a group that owns hotels here said Singapore’s positive handling of Covid has helped revive demand for hotel rooms from both leisure and business travellers in the region. The staycation business has also been helping fill hotel rooms here, as some are still cautious about travelling overseas or are deterred by high airline ticket prices.

The recovery in the hospitality market is expected to continue next year.

“Overall, we expect 2023 RevPAR for the Singapore hotel market to surpass pre-Covid levels, boosted by strong growth in ARR, while occupancy levels remain lower,” said JLL’s Li.

Missing from the action, however, are visitors from China, once the biggest source of tourist arrivals. The country remains a wild card for the Singapore hotel market.

Indeed, Li expects that while RevPAR numbers for hotels in the luxury and upscale segments in 2023 are expected to exceed their respective 2019 levels, the midscale and budget segments should recover more slowly, as these hotels rely mostly on groups and Chinese tourists.

Expanding supply

Some of Singapore’s listed hotel owners are set to increase their exposure in the coming years. An example would be UOL Group, which is nearing the completion of its redevelopment of the former Hotel Negara site in Claymore Road into the Pan Pacific Orchard. The 347-room property is expected to open its doors in the second quarter of next year.

Also next year, UOL is expected to demolish the old Faber House office block along Orchard Road and start redeveloping the freehold site into a 250-room hotel – optimising the property’s location in the prime shopping, hotel and entertainment belt.

CDLHT last month kicked off a renovation programme for rooms at Grand Copthorne Waterfront. This will continue in phases through August 2023. It also plans to spruce up the hotel’s meeting facilities in Q2 next year. “This asset-enhancement exercise will strongly boost the prospects for the hotel as one of the pre-eminent conference hotels in Singapore, in tandem with the opening of the Havelock MRT station in November 2022,” the group said in its Q3 2022 operational update.

According to JLL’s figures, some 7,186 hotel rooms will be added to the market between 2023 and 2026. For comparison, 10,747 rooms were added from 2016 to 2019.

Although the absolute number of new rooms is smaller, market observers do not expect a shortage of hotel rooms.

New hotels could also be developed, whether on government land-sale sites or private-sector land. The latter projects could include redevelopments of older office blocks into hotels or mixed-use projects with a hotel component, under the CBD Incentive Scheme.

High construction costs and interest rates may yet deter some developers from embarking on new projects.

Hoteliers told The Business Times that while revenues are expected to continue growing, their profit margins, and bottom lines, may take a hit if costs – including utilities, labour and debt – continue to rise.

There are also concerns that while demand for hotel rooms still appears very strong, despite worrisome headlines about economic and geopolitical troubles, it could moderate next year.

Another headwind is the strong Singapore currency, which would make the Republic a more expensive travel destination.

For now, the Singapore hotel market – which was the property sector hit the hardest by the Covid pandemic and the last to recover – is having its day.