FOR hotels across Asia-Pacific, 2015 was a mixed year as performance remained strongly correlated with business and consumer confidence, both locally and internationally. Economic uncertainty, currency depreciation and political agendas continued to weigh on consumer confidence throughout the year, with average spending decreasing despite increases in visitor numbers. Any growth was further tempered by new supply as a large number of new hotels entered the market. The outlook for 2016 remains equally uncertain.
According to the latest publication from the United Nations World Tourism Organisation (UNWTO), the Asia and Pacific region recorded a 5 per cent increase in international tourist arrivals from the previous year to reach 277 million (only counting overnight visitors) in 2015. Oceania (7 per cent growth) and South-east Asia (5 per cent growth) led the expansion, while South Asia and North-east Asian destinations recorded an increase of 4 per cent.
Based on the current trend and this year's outlook, the UNWTO projects international tourist arrivals to grow by 4 per cent worldwide in 2016. By region, growth is expected to be stronger in Asia and the Pacific (4 to 5 per cent).
According to data published by STR Global, revenue per available room (RevPAR), a key industry measure, was relatively stable between 2014 and 2015 at about US$74.25. While the strong growth in visitor numbers should have led to increases in RevPAR, short-term factors such as the MERS outbreak in South Korea, and the clamp-down on conspicuous spending in Greater China, have mitigated any potential gains. This is combined with the level of new hotel openings outpacing demand growth, reflecting the lag in the investment cycle for hotels, and also the weakening of Asian currencies against the US dollar.
The star performers for 2015 was Japan (and especially Osaka), which saw RevPAR increasing by 12.5 per cent year on year mainly driven by increases in the average daily room rate (ADR), as the yen remained weak, and visitor arrivals remained strong due to increased airlift, and the easing of visa restrictions for some countries.
Mainland China's performance was mixed across destinations, but domestic tourism provided a welcome boost especially to upscale and mid-market properties. Macau, Beijing and Shanghai all witnessed a contraction in performance especially at the top end of the market. However, destinations such as Sanya witnessed strong growth.
Vietnam, Thailand, Cambodia, India (especially Bangalore) and Australia all witnessed strong growth in 2015. In Vietnam, the easing of visa restrictions for some countries has clearly benefited the destination. In addition, Vietnam, as with Cambodia, is growing in popularity for gaming, as a result of the fallout from Macau.
Relative stability in Thai politics has clearly played a large role in driving visitor arrivals to the destination, despite geo-political events there.
Australian mining destinations, South Korea (due to MERS) and to a lesser degree, Singapore were among the poor performers in 2015. With regards to the latter, the level of new supply, and weakening of demand from key source markets such as Indonesia and Malaysia due to the strength of the currency, saw a 3.7 per cent decrease in RevPAR to S$238.38.
However, room occupancy levels remained at robust levels at over 82 per cent, suggesting a high degree of frustrated demand. Resort destinations such as Bali (and increasingly Lombok), Fiji and Okinawa continue to witness strong levels of growth.
According to the STR Global Pipeline Report, there are about 2,501 hotels totalling 578,114 rooms under contract across Asia-Pacific. This represents a 7.5 per cent increase on December 2014, and a 0.6 per cent increase year on year. China remains the destination with the most rooms under construction with 464 hotels, followed by Indonesia and India.
We expect 2016 to be another mixed year across Asia-Pacific destinations, as performance becomes more decoupled as monetary policy continues to divert.
Continued global economic and political uncertainty is expected to continue to weigh on both business and leisure visitor arrivals, and we would expect those countries with weaker currencies to continue to benefit, and domestic tourism to continue to expand. As such, we would expect a modest 4 per cent growth in visitor arrivals in 2016, with a 3 per cent growth in RevPAR - once again being tempered by supply growth.
South Korea is expected to recover in 2016, with Japan, Vietnam and Cambodia remaining strong destinations. Downside risks are expected across Greater China especially in Beijing, Macau, and Hong Kong. Singapore (due to the level of new supply and slowing performance in key source markets), Thailand (especially if the issues with Bangkok's Suvarnabhumi Airport are not urgently addressed), Indonesia, and to a lesser degree, India are also expected to face some headwinds.
The presence of "new" concepts such as Airbnb in the Asia-Pacific market is still too immature to gauge their full impact on hotels. However, we would only expect this to feature in the more mature destinations with high levels of year-round demand.
After years of relative neglect mainly due to the opaqueness of the market and lack of international brand presence, in recent years, interest in hotels across Asia-Pacific has increased from outside the region.
Institutional investors, private equity and sovereign wealth funds looking to diversify from exposure in the West and chasing higher yields continue to drive investor interest.
But pricing, underpinned by the gap in the approach to wealth preservation in the East and West, remains an issue. This is expected to continue in the short to medium term.
Hotel investment volumes across Asia Pacific totalled about US$9 billion in 2015, with Japan attracting the largest amount of interest, closely followed by Hong Kong and Australia. Chinese investment and private equity funds and Middle East sovereign wealth mainly drove investor interest.
However, local high net worth individuals and developers remained strong players in the sector. Across the region we can expect to continue to witness increased interest as the sector continues to provide attractive returns compared to other traditional asset classes.
In addition, price corrections in key markets and increased opportunities are likely to fuel investment activity in 2016. Japan, South Korea, Singapore, Hong Kong, Melbourne and Sydney are likely to continue to receive strong interest, while emerging markets are poised to benefit if the local investment environment improves.
However, investment is likely to continue to remain strongly inter-regional and dependent on wider global monetary policy decisions, local geo-political situations, pricing and availability of development financing. Investors are watching out for potential over-leveraged distressed sales, and downward pressure on valuations.
The hotel industry across Asia-Pacific continues to go through a metamorphosis, from an emerging destination dominated by local hoteliers to one that is becoming increasingly sophisticated on an international scale.
The recent addition of a significant number of Asia-Pacific-based hotels to the latest awards edition of Forbes Travel Guide is testament to this.
We expect this trend to continue in the short to medium term, with attention turning to more lucrative returns from the mid-market and lower sectors especially in mature destinations.
Further, with the proliferation of brands, we would expect owners to start focusing more on what really matters - net operating income - which should underpin valuations.
- The writer is regional director of hospitality and gaming, Asia-Pacific at Cushman & Wakefield.