Hotel room rates to keep falling in 2010

Visitor arrivals to Singapore are set to increase in 2010, but the hotel operating environment will remain challenging.

Annual figures to November 2009 from CB Richard Ellis show a drop in revenue per room (revPAR) of 27 percent to reach $146.

CBRE Hotels projected occupancy levels to decline to around 71 percent in 2010; average room rates to decline to between S$209 to S$221 and revenue per available room to decrease to between S$148 to S$158.

This follows 15 months of consecutive negative growth in visitor arrivals (year on year) in Singapore. Singapore is not the only country to have witnessed severe declines in RevPAR as a result of the global financial crisis. Most major cities across the region have witnessed at least a 10 percent decline in RevPAR, with Beijing experiencing a decline of over 45 percent.

However, Singaporean visitor arrivals are now appearing to be on the upward trend.

September was the first month to show positive growth in arrivals at an encouraging 7.1 percent, boosted by the Formula One Grand Prix, Hari Raya holidays and the Silver Week holidays in Japan. Visitor numbers grew 8.4 percent in November representing the highest growth in 2009.

Increasing visitor numbers are also evident across the region, and, according to preliminary data released by the Association of Asia Pacific Airlines (AAPA), a total of 11.1 million international passengers were carried by AAPA member airlines, representing a 4.5 percent increase on November 2008 figures.

Alison Poore, Senior Consultant of CBRE Hotels said: “Consumer confidence is certainly strengthening and corporate travelers are slowly but surely re- entering the market. As we move into 2010, all signs suggest the regional trend in consumer and business sentiment is likely to continue, driven by an improved outlook for the region’s economic growth prospects.”

Market sentiments are also expected to rise with the opening of the two Integrated Resorts (IRs) in early 2010. These attractions alone should generate a significant increase in visitor arrivals to the city state, and provide a much needed point of difference to the numerous destinations in Asia vying for a share of tourism demand in 2010.

Also, approximately 29 hotels with over 10,700 rooms are estimated to enter the Singapore hotel market by the end of 2012, with over half of the rooms due to open this year. If additional hotel projects announced but still in planning stage are included, Singapore could be looking at an additional 13 hotels offering 4,300 rooms by 2015. This brings potential new supply to 42 new hotels with over 15,000 rooms providing up to 15.1 million room nights by 2015, an increase of nearly 50 percent on October 2009 figures.

“Many market participants have serious concerns as to whether the anticipated demand will be sufficient to absorb the additional supply” said Poore. “Fortunately for Singapore, the massive investment in tourism infrastructure in the form of the two IRs will help generate significant additional demand, which, when combined with improving business and consumer sentiment, will help to soften the impact of such a dramatic increase in supply over time” said Poore.

Fortunately, not all hotels will open at the start of 2010 and it is likely that the release of the hotel rooms into the market will be staggered with the majority of rooms more likely to be fully operational towards the end. This will provide some breathing space for existing properties to focus on attracting new business and reinforcing existing client relationships in the first half of the year.

However, 2010 will remain a challenging year for hotels as revenue management strategies are put to the test, and it is unlikely that existing hotels will have the capacity to start increasing room rates in an effort to regain ground lost since the height of the boom.

Robert McIntosh, executive director of CBRE Hotels added: “Whilst it is extremely difficult to forecast hotel performance beyond 2010, it is likely that performance may continue to soften in 2011 and stage a recovery from 2012 onwards. However, it is highly unlikely that hotel performance in Singapore will return to the market highs of 2008 for a number of years”.