Singapore hotel room rates set to rise as visitor arrivals continue to recover

SINGAPORE hoteliers look set to keep raising rates, as a staffing crunch and travel curbs in China cap the recovery in occupancies, industry watchers have told The Business Times.

This comes even as arrivals rose to 121,190 in March, up from 67,760 in February - the highest level since March 2020, when Singapore unprecedentedly closed its borders to short-term visitors.

Industry room revenues jumped to S$146.9 million in March, up from S$103.0 million in the month prior, according to the latest data from the Singapore Tourism Board (STB).

Revenue per available room (RevPAR) grew to S$124.61, from S$118.45 in February, and room rates rose to S$198.32, from S$190.74 before. Still, occupancy was stable, at 62.8 per cent.

Singapore has been normalising entry requirements for fully vaccinated travellers, with a major relaxation of pandemic-related curbs expected to boost arrivals into the second half of the year.

But the bounce in arrivals “will remain tempered by prevailing restrictions in key source markets”, said Govinda Singh, executive director of valuation and advisory at Colliers.

With the labour market looking tight for the next 6 months, he added: “Hotels will continue to use average daily rate to temper room occupancy and keep service levels at expected standards.”

Margaret Heng, executive director of the Singapore Hotel Association, had last week told BT that some hotels are operating at occupancy caps of 50 per cent, owing to vacancies for positions such as housekeepers, room attendants, receptionists and cooks.

Still, Darren Tan, assistant chair of the hotel and hospitality management programme at Republic Polytechnic, said occupancy should improve in 2022 on the back of tight room supply.

Vijay Natarajan, a property and real estate investment trust analyst at RHB, predicted that occupancy will hover around the 70 per cent mark, compared with the high-80s pre-pandemic.

The restrained outlook comes as mainland China - which used to be a major source of visitors to Singapore - continues to impose strict limits on outbound travel.

“Several big tourist markets remain effectively shut because of lockdowns and quarantine requirements,” said Maybank senior economist Chua Hak Bin.

He cited mainland China, Hong Kong and Japan, and added that European tourists may also stay away, as war in Ukraine and rising energy prices dampen the economic climate there.

Visitor arrivals in March were led by India, which accounted for 27,530 travellers; Indonesia, at 13,620; and neighbouring Malaysia, with 10,610. China was in 9th place, at 4,130.

But Chua said visitors from India “may not move the needle significantly in terms of the overall outlook”, as their average spending may trail that of tourists from China, Europe or Japan.

Instead, Singh expects “a continued pivot to higher-rated business” at hotels, amid high near-term operating costs: “This will be exacerbated by a shrinking discounted domestic market, slowly being replaced by a return of higher-rated international business and leisure travel.”

Similarly, Desmond Sim, chief executive of real estate services firm Edmund Tie, told BT: “Room rates are expected to improve further, to be led by the upscale and mid-tier segments, while price sensitivities will stabilise the economy segment.”

Average room rates in the luxury segment rose to S$370.91 in March, against S$296.51 in the year-ago period, while upscale rates rose to S$228.54, from S$159.48 before; mid-tier rates rose to S$192.85, from S$104.42; and economy rates rose to S$77.53, from S$55.20.

“We don’t see hoteliers resorting to reducing rates to induce demand,” said Natarajan, who believes that room rates will stay elevated but still fall about 10 per cent below pre-pandemic levels.

The STB defines international visitors as people who spend less than a year in Singapore. It excludes returning residents and pass holders, Malaysians arriving by land, non-resident air and sea crew, and air transit passengers.

Sim noted that Singapore’s relaxation of border policies has given the Republic a headstart in the tourism market, especially for regional visitors and business travellers.

Yet the full impact of the relaxation may likely be felt only in the second half of 2022 or even in 2023, he said, while Chua expects arrivals to reach pre-pandemic levels only in 2024 or 2025.

As such, Chua told BT that Singapore’s ongoing reopening “should provide a small lift to services receipts”, but warned that the tourism sector “is far from being out of the woods”.

Tan added that, while hotels can maintain rates on higher demand and tight supply, “much will also depend on the quantum of growth in arrivals in the second quarter”.

“With regional countries opening up to foreign visitors as well, there will be competition for the fiercely competitive leisure market dollar,” he said.