Why investors should consider shifting to hospitality investments

RevPARs could recover starting 2H18.

The property market is moving towards the tail-end of the supply cycle, even though there is still the 2017 tower of supply to contend with, said CIMB in its latest sector note.

Amongst the subsectors, business parks would be the first to recover, noted CIMB, citing negligible supply post-2016 and Singapore’s focus on higher-value activities.

Grade A CBD office spaces would be next to recover towards the year-end, given the healthy take-up at the new developments, the tapering supply post-2017, and a more upbeat GDP growth.

Retail would realise a different story, as it is still faced with structural challenges. However, CIMB said retail REITs’ malls are well-positioned to enjoy niche positions.

Meanwhile, with the strong completions for warehouses and hotels in 2017, these properties would only see green shoots of recovery next year.

But this should not discourage investors from putting their money in the hospitality segment. CIMB said with minimal supply expected from 2018 onwards, no new supply of hotel land, and with a more stable macro, RevPARs could recover starting 2H18.

"Looking ahead of the curve – albeit amidst mixed data points – we recommend that investors start positioning in the hospitality sub-segment. Fortune favours the brave if our argument for a 2018 recovery pans out," said CIMB.