• Singapore still requires a significant amount of hotel rooms, particularly in the mid-tier to lower end
• Sharp increase in outbound trips from China and India bodes well for overseas destinations including Singapore
• Intra-Asia travel and growing domestic markets to continue to underpin hotel demand in the region
Singapore, 30 April 2018 – Concerns over the large supply of hotel rooms in Singapore has receded amid stronger tourist arrivals and stabilising corporate demand driven by firmer economic outlook. New hotel supply in Singapore is expected to slow substantially over 2018 and 2019, potentially keeping occupancies in excess of 84%, according to Colliers International’s Hotel Insight Q1 2018 report.
The Singapore Tourism Board (STB) projects international visitor arrivals to Singapore to rise by up to 4% to 18.1 million this year, following a record-breaking 2017 where the city-state received 17.4 million visitors. This growth represents a compound annual growth rate (CAGR) of 4.03% between 2011 and 2018 (forecast). The stronger tourism performance was largely underpinned by an increase in visitation from North and South Asia, and in particular China, Indonesia and India.
Mr. Govinda Singh, Executive Director of Valuation & Advisory, Asia, at Colliers International, says, “Hoteliers in Singapore have weathered the lean years - particularly 2015 and 2016 - admirably, and the hospitality sector outlook is decidedly brighter this year as market sentiment turns up. Considering the data from the STB, 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 substantial increases in room supply at over 5,500 rooms in 2015, an addition of 2,567 rooms in 2016, and about 3,400 new rooms last year. Colliers notes that hotel room supply will slow dramatically to 628 rooms in 2018, and 1,300 rooms in 2019, which would allow the recently added rooms to be absorbed into the market.
Frustrated and latent demand for rooms
Colliers anticipates the average hotel occupancy rate in Singapore to remain at more than 84% despite the new supply. 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.
Mr. Singh adds, “Our hotel needs analysis showed that the number of overnight visitors to Singapore has consistently outstripped hotel room stock since 2011, and is projected to remain so over the next few years. It 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 such as serviced apartments or dare I say Airbnb.”
Take 2011, about 57% of overnight visitors stayed in a hotel, which based on the total number of available rooms at that time would translate to an implied room occupancy of 121%. However, the hotel statistics provided by STB indicated that room occupancies for 2011 was 86% - suggesting that only about 40.5% of those requiring accommodation were able to do so in a hotel. A similar trend was observed for 2017, where the 85% hotel room occupancy rate indicated that only 43% of the 57% requiring rooms would have been accommodated.
In view of the growth potential, Colliers believes it could be an opportune time to reconsider more development and investment in the hotel sector. Given the high level of existing ‘frustrated demand’, the slight increase in room supply over 2018-2019 is unlikely to weigh on occupancy rates. Hoteliers in Singapore should see an improvement in Average Daily Rate (ADR) going forward, although the increase is not expected to be significant as long as the rupiah, ringgit and yuan remains relatively weak.
Intra-Asia travel underpins demand
Singapore, a favoured destination among many Chinese tourists, is expected to be one of the key beneficiaries of China’s rising outbound tourism, driven by growing affluence among the Chinese middle-class. Outbound trips are projected to increase sharply by 47.7% from 120.1 million in 2015 to 177.4 million in 2020.
Outbound trips aside, where China really excites is the tremendous growth opportunities for hotel owners and operators as the country aims to attract some 70 million overnight visitors by 2020 - up from about 59 million in 2016. The Chinese government also plans to invest over RMB2 trillion to boost tourism, including enhancing airports and urban rail transits.
Mr. Singh notes, “The recent sabre rattling between the US and China may weigh to some degree on business and consumer confidence, thereby tempering demand growth especially if it escalates. However, intra-Asia travel and the growing domestic markets in a number of the larger destinations across Asia, is likely to continue to underpin demand.”
Hotels across Asia Pacific have had a mixed start to 2018, with room occupancy levels showing a modest increase of 1.5% year-to-date February against the corresponding period a year ago. The increase however, came at the expense of ADR which retreated by 4.5%, led mainly by Central and South Asian properties.