Sep 10, 2015
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Amid challenging conditions, will the industry thrive or falter?

By Nikki De Guzman

With the declining number of international visitor arrivals and pressure from rising room supply, the city-state’s hotel industry continues to face headwinds that have resulted in a challenging market for the hospitality business.

The Singapore dollar also continues to appreciate against its regional counterparts, including the Indonesian rupiah and Malaysian ringgit, adding more burden to local hotels when facing local and regional competition for tourist dollars.

Given the challenging market conditions expected to persist, are hotel operators in the city-state able to cope?

Hits and misses

In 2014, international tourist arrivals in the republic totalled 15.1 million. This was a 3.1 percent decline year-on-year from 2013, and was below the Singapore Tourism Board’s (STB) forecast of 16.3 million to 16.8 million visitor arrivals for the year. It marked the first year of decline in international visitor arrivals since 2009.

According to the STB, the year saw 11.6 million visitors from Asia. However, while the number of Asian visitors to the city-state formed 76 percent of the total arrivals last year, it also represented a 3.7 percent year-on-year decline from 2013.

Despite this, the number of room nights sold in 2014 actually held firm, indicating that tourists’ length of stay has increased, and that visitors are choosing to stay in hotels. As such, according to CBRE’s H2 2014 Hotel MarketView report, the overall market occupancy rate for the period from January to November 2014 was at 85.7 percent, short of just 90 basis points from that in 2013.

Overall average daily rate (ADR) for the period under review remained steady, and posted a slight increase of 0.4 percent to $258.25 per night. However, in terms of revenue per available room (RevPAR), the minimal increase in ADR was not able to counterbalance the drop in occupancy rate for the overall market. RevPAR for the period from January to November 2014 stood at $221.30 per night, a drop of 0.7 percent year-on-year.

Despite a lacklustre performance in 2014, the property consultancy expects the market to recover this year, citing STR Global’s 2014 data that revealed that amid a challenging market, Singapore remained the highest ADR performer in Asia Pacific.

Equal and opposite reaction

However, the dwindling tourist arrivals from last year continued this year. According to data published by the STB in August, Singapore welcomed 7.26 million international visitors in the first half of 2015, a 3.4 percent decline from the same period last year.

Moreover, as regional currencies — particularly the Indonesian rupiah and Malaysian ringgit — weakened further against the Singapore dollar, visitors from the region also continued to lessen. The number of visitors from Indonesia and Malaysia fell 13.7 percent and 5.2 percent respectively, offsetting the increase in the numbers of tourists from China and India, which rose by 8.9 percent and 5.7 percent respectively.

Given the weakness of regional currencies against their Singapore counterpart, CBRE said tourists arriving in the country have become more price-conscious, with many opting for more affordable options. This was reflected in the May occupancy rates for mid-scale and economy hotels, which grew 2.8 percent and 1.2 percent year-on-year at 83.8 percent and 82 percent respectively. The two segments outperformed the occupancy rate of luxury tier hotels, which stood at 80.6 percent, and suffered a decline of 5.2 percent year-on-year.

But ultimately, the fewer tourist dollars led to a drop in overall average daily rate, which stood at $251.48. This translates to a 3.4 percent decline across all tiers in the first six months of the year, CBRE said. The overall RevPAR also dropped 4.6 percent to $213.29 over the same period (Refer to Figure 1).

chart

When the going gets tough

However, despite the drops in ADR and RevPAR, CBRE Hotels Asia Pacific Executive Director Robert McIntosh believes Singapore’s fundamentals are sound. However, he noted that hotels must ensure their service levels and revamps work with their clientele.

“Owners and operators should look seriously at ensuring their hotels present really well. This includes refurbishment and upgrading, as well as raising the service levels through innovative service staff training. Singapore has the highest average room rates in Asia, (so) guests expect real value for money, and the high occupancy levels have led some owners to delay the modernisation of their properties or to fail to plan for the future,” said McIntosh, adding that in order for Singapore to maintain its lead, it is vital that hotels exceed guest expectations, so as to encourage repeat visits and longer stays.

Hotel operators in the country have been seen slashing room rates to attract more visitors, while others are upping their game by undergoing extensive renovation works to introduce new offerings to locals and tourists alike.

Just recently, Holiday Inn Singapore Atrium unveiled new room offerings following a revamp, while Hyatt Singapore has also completed a massive renovation for its event venue. Meanwhile, InterContinental Hotel group said it is currently undergoing a holistic renovation.

The other side

Over on the investment front, the first half of the year saw only one major hotel sale transaction.

The sale of Capri by Frasers in Changi City in March was the sole hotel sale transaction for the first six months of the year. The 313-room hotel was sold to Frasers Centrepoint by Ascendas Frasers for $203.4 million (approximately $650,000 per key). The investment volume for H1 2015 translated to a decline of over 50 percent year-on-year, versus the record in 2014.

According to industry experts, the hospitality focus in the central business district (CBD) and Orchard area might begin to shift to city-fringe zones or secondary locations. Operators are also looking outside prime areas.

In recent times, hotel chains that traditionally locate their properties within key tourism areas have been building hotels away from the city centre and in places such as Jurong.

Genting Hotel Jurong opened its doors to guests in April this year. Genting Singapore’s 557-room hotel along Jurong Town Hall Road is designed for leisure and business travellers, and has become the first major hotel in the western part of Singapore.

But Genting is not the only operator that moved away from the CBD and Orchard. Just last June, Park Hotel Group held a soft opening for Park Hotel Alexandra, the group’s fourth hotel in Singapore.

More to come

Apart from Park Hotel Alexandra and Genting Hotel Jurong, the first six months of the year also saw the opening of several other hotels, including D’Resort Downtown East and Hotel Chancellor @ Orchard. By the end of 2015, over 60,000 hotel rooms are expected to be available here, a significant increase from the 57,172 at the end of last year, and 54,962 at the end of 2013.

Looking ahead, a steady supply of hotels is expected to enter the market in the next 12 months, which analysts say will continue to put downward pressure on room rates as well as occupancy rates in the city-state.

In addition, local media reports revealed that there are more hotels expected to spring up in and out of the city centre in the near term, which analysts say will heat up competition in the already tough market.

However, by 2017 and 2018, operational headwinds and increased competition are expected to ease gradually, as the future supply of land for hotel use will be limited.


Commercial Highlight

Tanjong Pagar Centre
Peck Seah Street/Choon Guan Street

Type: Integrated development

Developer: GuocoLand Group

Tenure: 99-year leasehold

Components: Residential, retail, office and hotel

Nearest MRT: Tanjong Pagar, Maxwell (upcoming)

Scheduled TOP: 2016

GuocoLand’s iconic Tanjong Pagar Centre is an upcoming integrated development set to rise in the historic Tanjong Pagar precinct.

The project will feature 100,000 sq ft of retail space, with 60 percent set aside for F&B use and the rest for lifestyle concepts. The retail component is spread over six floors of the building, from basement 2 to level 3 and level 6.

Basements 1 and 2 are directly linked to Tanjong Pagar MRT station, and will feature express gourmet, casual eateries and “Grab & Go” F&B options as well as niche retail concepts. Level 1 will provide unique al fresco F&B and entertainment choices set within a 150,000 sq ft landscaped Urban Park. Levels 2 and 3 will offer exclusive duplex dining choices, while level 6 will house the health and fitness centre.

Tanjong Pagar Centre also integrates 890,000 sq ft of premium Grade A office space, 181 luxurious homes, and 222 business hotel rooms. With a height of 290m, Tanjong Pagar Centre will become Singapore’s tallest building upon completion in mid-2016.

 

The PropertyGuru News & Views This article was first published in the print version The PropertyGuru News & Views. Download PDF of full print issues or read more stories now!
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