Ravi Chandran
A recent research by Colliers International said that the government’s recent announcement of the hike in development charges, is expected to put a dampener on hotel development projects. This, combined with the already high land costs, is likely to put off any new hotel development projects and refocus capital on existing projects or those properties that can be easily converted to hotel use within the existing plot ratio.
The research report on the prospects of hotel development projects in Asia, entitled ‘Hotel Insights Q2 2019‘ said that with further consolidation in Asia hotel market, investors may turn to REITS and equity stakes in hotel operators.
“Tourism arrivals in Singapore are expected to grow by 3.5% in 2019 following a relatively strong performance in 2018. In 2019, visitor arrivals are expected to reach 19.2m, with a further 3% growth forecast for 2020. This is a robust performance after the stagnant figures in 2015, and strong growth in 2016, and is mostly underpinned by an increase in visitation from North and South Asia, and in particular China, Indonesia and India.
“Tourist arrivals from India have seen the highest spike of 13% with cruise arrivals going up by 27%. This growth represents a compound annual growth rate (CAGR) of 6% between 2010 and 2019f. In 2018, the average length of stay fell to 3.3 days, from 3.4 days previously recorded. However, total visitor stays (what really matters to hotels), grew by a CAGR of 4.8%. With the changing travel habits of travelers from nearby source markets, the average length of stay is expected to dip slightly as day trips and shorter corporate trips become a common sight in Singapore. This is perhaps not surprising given the relative high costs of staying in hotels in Singapore, with ADR increasing 1.7% to S$219 by the end of 2018.
“Tourism receipt per capita decreased from S$1,691 in 2011, to S$1,430 in 2015, a drop of 15.4%. However, tourism receipts started to rebound in 2016, increasing by a whopping 8% into 2017 and another circa 1% in 2018. The increase in tourism receipts was boosted by more tourist arrivals from high‐spending markets such as China, South Korea, the US and the UK.
“In addition, the forecast for tourism receipts is to grow by another circa 3% in 2019 mainly attributed to higher spending in sightseeing, entertainment, gaming and shopping for health and wellness products.”
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The report which touched on hotel development projects pointed to the Singapore Tourism Board (STB) statistics which said, circa 55% of overnight stays are in hotels (latest available), of which 47% of visitors are repeat guests. The main purpose of visit is leisure/VFR (Visit Friends/Relatives) (70%), with circa 14% here on business/MICE visits.
The report said that considering these statistics, it suggests that Singapore still requires a significant amount of hotel rooms to accommodate its visitors, with growth in visitation being tempered by the low level of room supply especially at the mid‐market to lower end. This is despite the addition of 2,865 rooms in 2016 and the significant 7.4% increase in 2017 (4,738 rooms).
Although there were only 770 rooms added with new hotel development projects in 2018, Colliers noted that an estimated 1,700 rooms are expected to enter the market in 2019, as room supply continues to be moderated in Singapore and hotel supply remain muted in the short term
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“With the recent tender of the government land site at Club Street, the white sites at Pasir Ris Central and Marina View, which can together potentially accommodate circa 930 rooms, in our estimation, we expect another 2,500 rooms to be added between 2022 and 2025. Significant new hotels scheduled to open beyond 2021 include the Pullman Singapore (342 rooms), Banyan Tree Mandai (400 rooms), and Club Street (390 rooms).
“In addition, in circa 2025 we expect Marina Bay Sands (MBS) and Resorts World Sentosa (RWS) to add 2,100 rooms as part of their integrated resort (IR) expansion plans. It is therefore likely that demand will continue grow as the IRs expand their offerings.
“In terms of hotel performance, room occupancy remains well in excess of 83% despite the new supply. In any event, a closer look at the room stock versus demand, suggest that hotels in Singapore are full almost all the time during peak periods, and especially during Monday to Thursday, and Saturday nights. This suggests that there is a high degree of existing frustrated and latent demand, whereby visitors who wish to come to Singapore either cannot find rooms or have to turn to alternative accommodation providers.”
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The report said that going forward, as tourist arrivals increase, and given a positive economic and geo‐political outlook, Colliers expects room occupancy to continue to grow slightly in 2019 and beyond. In addition, it said that given the already high room occupancy levels, and the continued low levels of new supply anticipated, hoteliers can be expected to drive room rates even higher. This would ultimately result in year‐on‐year income growth over the coming years.
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