Hotel room demand to outstrip supply growth by 2016

Supply growth will be 5.9%.

According to UOB Kay Hian, the latest tenders for hotel sites confirm hoteliers’ optimistic prospects for the sector. The latest tender for the Jurong Town Road site, which closed in Nov 12, saw strong participation from 11 bidders, with a record top bid of S$1,167psfppr (2.8x the minimum reserve price) from Genting Singapore.

These strong biddings are indicative of the tight demand-supply situation. Hotel valuations for a typical fourstar hotel have also increased 15-25% over the last one year to S$800,000-1,000,000/room key.

Here's more from UOB Kay Hian:

We forecast demand growth of 6% p.a. to outstrip supply growth of 5.9% p.a. over the next three years. We believe concerns over the hotel room oversupply are overdone.

Our forecast assumes a visitor arrival growth of 8% yoy in 2012 and 6% thereafter (historical 10-year CAGR), a flat average length of stay of four days, and hotel utilisation ratio (available rooms/total number of rooms) of 95%.

We expect RevPAR to grow 2-5% p.a. (2012 - 7%) over the next four years, underpinned by healthy occupancy levels of above 85%.