Despite the positive year-on-year growth in international tourist arrivals to Singapore from January to September, hospitality REITs largely registered uninspiring RevPAR/RevPAU and DPU figures during the recent financial period, OCBC Investment Research report revealed.
“Overall visitor arrivals are up 9.4 percent for 9M16. There was also a robust 12 percent improvement in tourism receipts to S$11.6 billion for 1H 2016, underpinned by higher expenditure in shopping, accommodation and F&B,” said OCBC.
“In terms of hotel statistics, occupancy was stable at 85.0 percent from Jan-Sep 2016 (-0.1 ppt), but RevPAR was down 3.3 percent to S$201.90.”
The research house attributed the dismal figures to tepid corporate sentiment as well as competitive pressures from higher supply situation.
Moreover, the growth in tourist arrival has been moderating, with the increase of 2.5 percent in August and 1.1 percent in September, compared with the double-digit growth seen from January to May.
“Looking ahead, industry watcher Horwath HTL has estimated that there would be a 4.1 percent and 6.1 percent increase in hotel rooms in Singapore in 2016 and 2017, respectively. In addition, given the uncertain geopolitical and macroeconomic environment, we believe travel budget from the corporate segment may remain cautious,” noted OCBC.
“This would impact the margins of hospitality REITs as the average room rate for the corporate segment is typically higher than the leisure segment.”
With this, OCBC expects hospitality players to adopt a more aggressive pricing strategies as they struggle for market share to maintain occupancy rates.
“We expect single-digit RevPAR declines in 2017,” it added.