Travel and tourism sector in the region continued its run of strong performance in the first half of 2018. Hotels across Asia Pacific booked a 1.2% growth in room occupancy levels against the previous half year - thanks to the strong growth in Average Daily Rate (ADR), which rose by 7.3%, led mainly by North Eastern and South Asian properties.
In particular, Bangkok, Beijing, Ho Chi Minh City, Hong Kong, Kuala Lumpur, Sanya and Phuket all witnessed double-digit increases in Revenue Per Available Room (RevPAR) in H1 2018. Whether this sets the scene for the remainder of the year remains to be seen given the short time line.
Colliers’ latest Hotel Insights report
highlighted the outlook for the hospitality sector in Malaysia which has enjoyed a long period of sustained high economic growth, albeit at a slower pace in recent years owing to the global financial crisis in 2009 and continued political uncertainty.
Malaysia is currently the 12th most visited country in the world, and the 3rd most visited country in Asia after China and Thailand. The Malaysian government has made great efforts to ensure that tourism plays a vital role in the country’s economy. According to the World Travel and Tourism Council’s economic forecast travel, tourism directly contributed MYR65.7 billion (USD16.2 billion) to the country’s GDP equating to 4.8% of total GDP in 2017. This is expected to rise again in 2018 by a further 3.9%.
In 2017, the top 10 source markets to Malaysia were all from ASEAN countries. Singapore remained the top source market accounting for some 48% of total international arrivals followed by Indonesia making up 11% and China, third, with 9%.
RevPAR reached an all-time high of RM274 (USD67) in 2013. However, in 2014, the additional supply of 52,500 rooms could not be fully absorbed by the rising number of incoming tourists leading to significant drops in both hotel occupancy and ADR. The repercussions of this combined with the Malaysian Airlines incidents impacted Malaysia’s hotel performances even further in 2015 leading to a RevPAR decrease of circa 21.9% to RM214 (USD53).
However, there were signs of marginal improvement in 2016 and 2017 with RevPAR increasing slightly to RM220 (USD54) and having a further increase to RM244 (USD60). This trend appears to be continuing in to 2018 with year-to-date RevPAR up circa 11.2% over the same period in 2017.
Over the three-year period between 2014 and 2016 (latest available), Malaysia saw a CAGR of circa 7% in the total number of hotels and available rooms. Despite the growth in demand for hotel rooms increasing consistently to 2016, demand has been outpaced by the amount of supply that has come in to the market. This has also had an impact on hotel room occupancy which has dipped from 66.2% in 2014 to 63.9% in 2016, as demand growth could not keep pace with the level of new supply.
However, there were signs of improvement in 2017 with occupancy levels reaching 67.1%. In-line with the improvement in occupancy levels, Malaysia’s ADR increased by 6.2% from RM343.6 (USD85) in 2015 to RM364.8 (USD90) in 2017. Hotel performances varied across the country, with some markets such as Kuala Lumpur and Langkawi witnessing some growth as demand continued to outpace supply. This might have attributed to the increase in RevPAR by a significant 14% from RM214 (USD53) in 2015 to RM245 (USD60) in 2017.
Moving forward, we expect visitation to Malaysia to continue to grow albeit at a less aggressive pace. The country’s continued tourism marketing efforts and easing of visa restrictions (especially for China and India) are likely to continue to drive demand in the short to medium term. However, Malaysia’s growth will much depend on factors such as wider economic issues, foreign currency movements and geo-political events. Nevertheless, as the destination has shown time and again in the past, it can recover quickly from any event.
Hotel investment in Malaysia has experienced several years of lacklustre which is unlikely to see any form of major reversal in the short term. This is due to factors such as interest rate hikes, affordability concerns and the ongoing increases in supply entering the market. In 2016, the Malaysian Government announced the much-needed ban on the issuance of hotel licences in Kuala Lumpur in an attempt to resolve the rather grave issue of supply glut entering in the city. Unfortunately, this did little to alleviate investor’s persistently weak sentiment in both Kuala Lumpur and Malaysia as a whole.
Nevertheless, the initial yield outlook remains stable at a moderately high level. Whilst we expect the number of hotel transactions in Malaysia to remain somewhat subdued, we may start to see glimmers of increasing investor interest in markets such as Penang and Sabah.