Hotel industry continues to shine

By Bong Xin Ying

/ EdgeProp Singapore |

December 27, 2019 6:00 AM SGT

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SINGAPORE (EDGEPROP) - It’s been a good year for the hospitality industry.

In 2019, hotel-related transactions are at $2.15 billion, which according to property consultancy firm CBRE almost quadrupled that of 2018. That year, transactions stood at $544.69 million.

Meanwhile, the hotel investment volume –including hotel land sales sites – is expected to exceed $2.4 billion, says JLL Hotels & Hospitality senior vice president for strategic advisory and asset management Asia Giuliano Esposito. This optimism is fuelled by the surging tourist arrivals, which came on the back of MICE (meetings, incentives, conferencing, exhibitions) events held in Singapore.

According to JLL’s Singapore Hotel Market Update 2019 report, visitor arrivals to Singapore grew to 11.1 million in the first seven months of 2019. Events in the city state have also been aplenty. In 2018, Singapore saw several high-profile events like the North Korea and the United States Summit in Sentosa, the launch of the Singapore set Hollywood film Crazy Rich Asians and the 51st ASEAN Foreign Ministers’ Meeting.

Esposito says Singapore “received record visitor numbers for the third consecutive year of 18.5 million, whilst Changi Airport handled record number of passenger movements of 65.6 million in that same year”.

He adds: “The momentum in 2018 carried through in 2019 with occupancy peaking at 93.9% in July 2019, marking the highest average occupancy rate achieved in any given month since the Singapore Tourism Board (STB) began tracking hotel trading performance.” The entrance of new airlines and flight roads to Singapore supported the increase in accommodation demand while the opening of Jewel Changi Airport in April 2019 coupled with the “positive” hotel trading performance “further drummed up demand in the hospitality space, particularly in the investment scene,” says Esposito.

There have also been a “recent influx” of foreign capital, says Esposito. One example is the sale of the Oakwood Premier OUE Singapore for $289 million to joint venture firms formed by Hong Kong financial services firm AMTD Group and hotel operator Dorsett Hospitality International. Also, ibis Singapore Novena was sold to a high-net-worth-individual based in Bangladesh for about $169 million.

This year, the sale of the 342-room Andaz Singapore to local property developer Hoi Hup Realty for $475 million set a record for the highest single asset transaction. This was also higher than the sale price of Westin Singapore, which was sold for a reported $468.0 million in 2013.

Zhang Jiahao, associate director of CBRE Hotels for Asia Pacific, says that Singapore’s average daily rate (ADR) and occupancy has been one of the strongest in Asia Pacific – with the ADR standing at $219.59 for the 12 months ending October 2019. He also adds that the occupancy levels reached 86.5% during the same period, amid steady growth in visitor arrivals and the shrinking supply pipeline.

Hotel performance continues to be robust with revenue per available room (RevPAR) up 3.9% year-on-year in October 2019 according to the latest STB data, says Govinda Singh, executive director of valuation and consultancy services at Colliers.

Increase supply

CBRE’s Zhang says an estimated 50% of the proposed pipeline expected to come onto the market between 2019 and 2022 will come from the midscale and upper midscale segments. This trend is expected to continue as the low cost of construction and operations for this segment can contribute to a higher profitability and return on investment (ROI) than the upscale and luxury hotels, he adds.

Zhang also observes that the ADR growth in the Singapore hotel market has been “limited” over the past few years. “While mid-scale and upper midscale hotels have the flexibility with its ADR positioning while maintaining profitability, it is more challenging for luxury hotels to do so,” he explains.

This is in contrast to the last six years when several hotels positioned in the upscale and luxury segments have opened including brands such as Andaz, JW Marriott, Kempinski, InterContinental, Six Senses, Sofitel and Westin.

“We are seeing a wave of new hotels that are positioned in the midscale segment in the coming years,” says Esposito. This includes the development along Club Street by Worldwide Hotels which was given a provisional permission (PP) to build a hotel with over 900 rooms. Also, a 460 to 475-room upper midscale Moxy hotel, operated by Marriott International, is expected to eventually be part of the mixed-use redevelopment at the existing Liang Court site, adds JLL’s Esposito.

Despite this, CBRE’s Zhang says the 12 months ending October 2019 have also brought good news for the luxury hotel segment which saw a 2.3% y-o-y RevPAR growth, the highest among all the different hotel tiers. To him, this “reflects sound demand fundamentals and Singapore’s ability to continue attracting high yielding international demand.”

Zhang adds: “With the reopening of the Raffles Hotel, it is expected to compete once again with other luxury hotels such as The St. Regis Singapore, The Capitol Kempinski, Fullerton and the Capella, among others, for the top luxury hotel status in Singapore. Capable of generating their own respective demand, these luxury hotels can collectively help to spur the growth of international tourism demand into Singapore.”

On the sites sold and approved to be converted, Colliers’ Singh says that they “will likely come into operation in 2023 and beyond.”

He adds: “Accounting for all these known supply so far, the total new completions over 2020 to 2024 would average around 1,400 units per annum, still well below the last ten-year average of circa 2,800 rooms per annum.”

Over in Sentosa, the three new properties by Far East Hospitality – The Barracks Hotel Sentosa, The Outpost Hotel Sentosa and Village Hotel Sentosa – will open with an eye towards the midscale to luxury markets. “The entry of these new products will help to further uplift the positioning of Sentosa and strengthen awareness as a leisure destination for visitors,” says CBRE’s Zhang, who adds that “these properties are likely capable of generating their own demand due to brand loyalty.”

Meanwhile, average occupancy numbers also continue to rise. In October 2019, average hotel occupancy in Singapore rose by 1.5 percentage points year-on-year (y-o-y) to 87.8%, the highest ever recorded in the month of October, notes JLL’s Esposito. Similarly, he sees room rates holding up amidst strong demand, increasing by 2.1% y-o-y to $224 in the same month.

“We do not foresee an oversupply situation in the near term,” says CBRE’s Zhang.

“While we expect more new hotel rooms to be added, the growth rate of new hotel rooms between 2019 and 2023 is approximately 2% per annum, which represents a much slower rate of growth as compared to last five years (2014-2018) at approximately 4% per annum. With continued efforts by STB and industry partners, we expect demand to grow at a slightly faster pace than supply, “ he adds.

JLL’s Esposito also expects supply in 2020 to be “limited”, with around 520 rooms in the pipeline. This is in contrast to the average annual new supply of about 2,300 rooms from 2015 to 2019, he says, pointing to new hotels like the Dusit Thani Laguna Singapore located within the Laguna National Golf & Country Club and The Clan Hotel on Cross Street.

Outlook

With record investment sales in hospitality assets in 2019, some experts expect a possible slow down in 2020.

However, Colliers’ Singh says that headwinds should prevail but “some of these downside risks will be mitigated by the slow hotel supply pipeline.”

In 2020, Singapore will see the return of some large bi-annual MICE events like the International Trademark Association’s 142nd Annual Meeting with an estimated 8,000 attendees and the 103rd Lions Clubs International Convention with an estimated 20,000 foreign attendees

With that, Singh says “given the outlook and mitigating factors, we would expect RevPAR to grow circa 1% in 2020.”

CBRE’s Zhang also cites upcoming tourism developments, like the Mandai Eco Tourism Project and the tourism development at the upcoming Jurong Lake District as examples of events which will drive the demand for hotels.

He concludes: “While we are not a long-stay market… we have strong arrival numbers and a well-managed supply situation.”

“Consequently, going into 2020, we expect owners, investors, hotel operators to continue to look for strategic hotel sites and developments.”

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