Hotel supply to increase by 4% for the rest of 2017

But revPAR could dip by 3% this year.

The hospitality sector is set to benefit from a 4% expected increase in hotel rooms, RHB said in a forecast.

The rise in supply mostly in the upscale or luxury and mid-tier segments should exert pressure on revenue per available room (revPAR).

According to RHB, hotel supply saw a CAGR of 5.1% during 2011-2016.

However, in 2018 and 2019, the supply could fall to 1.7% and 1.9% respectively, which should reduce competitive pressures.

Overall, RevPAR is expected to decline by 2-3% in 2017 then bounce back by 3-7% during 2018-2019.

Here's more from RHB:

YTD, hospitality REITs are up 16.4%, outperforming S-REIT’s 13.6% and STI’s 11.8%.

Despite the outperformance, hospitality REITs’ average forward yields of 6.2% and yield spread of 4.1% are the highest among sub-sectors.

The subsector’s P/BV of 0.98x is also reasonable compared to S-REITs average of 1x. Our picks are CDL Hospitality Trusts and OUE Hospitality Trusts.