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Asia-Wide Revenue Growth Of Hotel Markets Could Soften This Year, But Positive Turn Expected In 2014

November 26, 2013 Statistics & Trends No Comments Email Email

The Asia Pacific region is on track for another record year of international tourist arrivals in 2013, according to a report released today by Cushman & Wakefield, the world’s largest privately owned real estate firm.  

The Asia Hotels View 2014, an annual publication covering a clinical assessment and outlook of the hotel market performance in 23 cities across Asia, revealed that estimates showed an 8% growth year-on-year in the first half of 2013. Last year, 221.5 million international tourists visited Asia, which was 7.2% higher than in 2011. Of all the sub-regions, Southeast Asia took the lead with a 9.9% year-on-year increase in arrivals. Across Asia, authorities are expanding capacities of airports, rail, sea-ports while enhancing city connectivity and infrastructure as part of the efforts to boost their tourism sectors.

Sigrid Zialcita, Managing Director of Research for Cushman & Wakefield in Asia Pacific commented: “Tourism in the region is currently in a virtuous cycle,250x250TICBanner feeding off from the positive effects of the region’s rising economic status as well as the proliferation of affordable air travel. This bodes well for the long-term outlook for Asian tourism demand, which have positive implications on the region’s hospitality markets.”

Singapore:

Akshay Kulkarni, Regional Director of Cushman & Wakefield’s Hospitality sector group across South Asia and Southeast Asia said: “The Singapore hospitality market in the last 12 months has seen two of the largest deals undertaken and has also seen an addition of about 3500+ rooms. And yet the operating numbers seem to show little or almost no stress. Put these factors together and there is definitely a winning combination. The capital values are up – which obviously means people are still bullish about the hotel markets and see an upside. There is still supply that is going to hit the market which means that the future demand is not in question. Rates have held steady which means that there is demand that has come in to absorb most of the new supply.

We think that this momentum will continue as Singapore is considered to be one of the most stable markets in the World. The steady growth in demand and supply will keep the operating numbers / parameters looking healthy. Capital Values will continue to rise as there will be a premium to be paid for the stability. Measured supply potential will ensure that vacancy is not high. However, profitability over the next few years may be affected by the rising costs of manpower which could affect margins.

In 2012, most hotel markets across Asia saw positive growth in RevPAR (Revenue Per Available Room) with the exception of Mumbai and National Capital Region, India. The top markets in terms of RevPAR growth were Bangkok (19.3%), Hong Kong (10.1%) and Jakarta (9.8%). They had benefited from improvements in occupancy levels and increases in Average Daily Rates (ADR). The markets that saw a decline in RevPAR include Bali (-4.6%), Ho Chi Minh City (-7.0%), Mumbai (-15.1%) and NCR region (-21.6%), whose performances lagged behind due to a substantial recent inventory of hotel rooms.

In 2013, hotel performances in the region have been mixed. With the dramatic influx of new hotel rooms in the recent few years, there has been some price relief observed in some markets, such as Singapore and Shanghai. On the other hand, some emerging markets like Dhaka, Yangon, Colombo with limited high-end hotel stock amid strong tourism demand are enjoying strong revenue growth presently. Overall, Asia-wide RevPAR is expected to fall below 2012 levels, although performances will vary across markets.

Hotel markets across Asia are experiencing continuous growth in their pipeline and room stocks both in terms of international and domestic brands. International hotel groups such as Hilton and Starwood are expanding rapidly in China, India and Indonesia and these countries have the largest pipeline.

Akshay Kulkarni, Regional Director of Cushman & Wakefield’s Hospitality sector group across South Asia and Southeast Asia said: “Several hotel markets have had a large supply influx of rooms in the past year or so. This has led to region-wide RevPAR levels falling in the first half of 2013 due largely to declining occupancy levels. However, we expect much of the excess supply to get absorbed soon on the back of strong tourism demand. As occupancy starts increasing, we will see room rates rising upwards in most markets. RevPAR growth in Asian hotel markets is expected to turn positive in 2014. The only exception is likely to be Seoul, which is seeing an unprecedented pipeline of least 15,000 rooms over the next two to three years, doubling the current supply.”

The hospitality investment market in Asia has seen a substantial weight of capital investing in Japan, Singapore and China so far this year. For the 1H 2013, total investment volumes of value of hospitality assets, closed or contracted, have reached USD5.16 bn. This is an increase of over 53% from the same period last year. Including preliminary data from Q3 2013, total investment volumes year-to-date has reached USD8.14 bn.

Cushman & Wakefield expects the 2013 investment volumes to reach USD 10-12 bn. This would make 2013 a record year for hospitality investment after the global financial crisis.

Akshay added, “Expect 2014 to equal or come close this year’s level in terms of transactional activity. Japan’s investment market will undoubtedly improve further and lead the pack, due to strong corporate demand and greater investor optimism arising from Abe’s economic reforms. Less transactional activity is expected for Singapore after a busy year. Similarly, levels in China could come down due to pricing mismatch and differences in buyer and seller expectations. India, Thailand, Indonesia and to some extent, Philippines could see more exciting times ahead with some major transactions to be closed. Emerging countries such as Myanmar and Sri Lanka have recently become viable investment destinations due to improved political stability.”

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