Singapore Hotel Market 'May Firm Up In 2010'

Source : The Straits Times, May 25, 2009

IRs could boost room demand across the board, says consultancy

HOTELS are feeling the pinch of recession, with occupancy down and room rates falling in the wake of plunging visitor arrivals.

The upcoming Marina Bay Sands IR (right, background), which is set to open next year along with Resorts World at Sentosa, could increase visitor arrivals here and generate significant demand for hotel rooms, says Horwath HTL managing director Robert Hecker.-- ST PHOTO: ALPHONSUS CHERN

But the good news is that the market could stabilise as soon as next year, according to hotel consultancy Horwath HTL. It bases its optimism on the two integrated resorts (IRs) drawing plenty of visitors when they open in Marina Bay and Sentosa next year.

In the first three months of this year, occupancy fell 12per cent to 67per cent for mostly three- to five-star hotels. The crunch has already prompted a 16 per cent decline in average daily rates (ADRs) to $260.

'We are projecting a further decline for full-year 2009, but with the strengthening of the (Singdollar), the US dollar ADR remains approximately in the same range,' said Horwath HTL managing director Robert Hecker.

Hotel demand started to slip early last year, but hotels were driving their ADR growth even though occupancies were falling, he added.

Mr Hecker said the ADR was positive until last September's Formula One race, and then the situation 'caught up with Singapore. We'll see a few more months of decline'.

This decline is unavoidable, given the downturn, and the industry has basically written off this year, he added.

'It's all about 2010 and trying not to lose anything in 2009,' Mr Hecker told the Hotel Investment Conference Asia Pacific here last week.

Singapore had around 39,000 hotel rooms last year and will add 1,100 more rooms in the three- to five-star range this year and a further 20per cent next year, thanks mainly to the IRs, he said.

But the huge additional supply coming onstream concerns some analysts, given the falling tourism numbers.

Visitor arrivals recorded a 10th consecutive month of decline in March. About 10.1million visitors arrived last year, short of the 10.8million target.

Before the global downturn hit home, Singapore was aiming to attract 17million visitors by 2015.

Singapore Tourism Board (STB) data for March showed that the average occupancy rate for all hotels here fell 13percentage points to 74per cent, while the average room rate stood at $196, down 18.5per cent from the figure a year ago. Revenue per available room fell nearly 31per cent to $145in March.

But Mr Hecker told the conference that the market will hold next year.

'We believe the opening of the two IRs next year will generate significant amounts of induced demand to help absorb their new rooms and prop up the overall market,' he said. 'There will be visitors at all price points such that demand will spread across the market.'

Additional business in the Mice - meetings, incentive travel, conventions and exhibitions - industry will also be significant, he added.

Another conference speaker, Park Hotel Group director Allen Law, who is keen to invest further in Singapore, said a lot will depend on how the IRs release their hotel rooms. It will have to be in phases so as not to flood the market, he told The Straits Times.

Horwath believes occupancy this year and the next will average 65 per cent to 70per cent, with ADR hovering around $250 to $255.

Unlike the STB, which surveys all hotels, its forecast is primarily for those in the three-to five-star range.

Meanwhile, the hotel investment market will remain subdued going into next year, according to Jones Lang LaSalle Hotels' managing director of Asia investment sales, Mr Mike Batchelor.

He said there would be buying opportunities and postponement of new projects while a few deals are being discussed now.

In the general Asia-Pacific market, institutions and funds are selling while the buyers are Asia-based high-net-worth individuals and families.

Mr Batchelor told the conference that hotel owners should prepare for further asset value write-downs, but he sees light at the end of the tunnel.

So does property tycoon Kwek Leng Beng, who attended the conference. He told The Straits Times that he would restart the South Beach project in Beach Road next year.

City Developments, of which he is executive chairman, announced last November that it was shelving the $2.5billion leasehold project due to the economic turmoil and high construction costs.


Falling rates

Singapore Tourism Board (STB) data for March shows that the average occupancy rate for all hotels here fell 13percentage points to 74per cent, while the average room rate stood at $196, down 18.5per cent from a year ago.

Horwath believes occupancy this year and the next will average 65per cent to 70per cent, with average daily rates hovering around $250 to $255. Unlike the STB, which surveys all hotels, its forecast is primarily for those in the three- to five-star range.