Economy hotels likely to be worst hit in 2016: HVS poll

A PROJECTED decline in Singapore hotel market performance this year is expected to be most pronounced for hotels in the economy segment, due to the significant increase in supply and intensifying competition - shows a survey of Singapore hotel industry professionals conducted by hotel advisory group HVS.

Total revenue for hotels in the economy segment on the island is expected to slide 10.3 per cent on average in 2016, dragged by a projected 8.3 per cent fall in average daily rate (ADR) and 3.0 percentage point drop in occupancy rate.

The second-worst performance is projected for hotels one step up, in the midscale category; their total revenue is forecast to slide on average by 6.0 per cent in 2016; ADR is expected to ease 4.7 per cent and occupancy rate, by 4.9 percentage points.

In terms of total revenue, upscale hotels are expected to emerge least scathed in 2016, with a 2.2 per cent projected drop.

As far as occupancy rates are concerned, luxury hotels will likely see the smallest decrease, of 1.2 percentage points; a 2.3 per cent drop in their ADR is also the smallest decline forecast among the five categories of hotels by the survey respondents.

On the whole, based on the same set of results from respondents, the overall Singapore hotel market is expected to see a 3.4 per cent drop in total revenue this year. ADR is projected to shrink 3.8 per cent and the occupancy rate, by 2.2 percentage points.

HVS said in its report: "In general, the market sentiment is slightly pessimistic towards the hotel industry performance in 2016. This is mainly due to macro reasons such as the uncertainty in global and regional economies, currency fluctuations in the region and concerns with the Chinese market, which is Singapore's top trading partner."

On a micro level, new hotel supply, intensified competition, decrease in corporate demand and labour shortage are issues that will affect the hotel industry's ability to maintain current occupancy rate and ADR levels, it added.

"In view of the numerous initiatives by STB (Singapore Tourism Board) to promote Singapore, it is likely that despite the pessimism at the start of 2016, hotel performance may maintain at current levels," HVS said.

The group conducted the survey at the start of this year to seek the opinions of hotel industry professionals on the Singapore hotel market performance this year.

The questionnaire was sent out to three groups: those based at the hotels, those at corporate offices as well as external hospitality professionals.

Of the 180 industry professionals experienced in the Singapore market whom HVS reached out to, 82 replied with their responses.

It was found that corporate level professionals had the most pessimistic outlook, forecasting a 4.7 per cent average drop in total revenue this year.

Those based at hotels predicted a 3.2 per cent revenue drop while external hospitality professionals forecast just a 0.9 per cent drop.

Last year, international visitor arrivals to Singapore crept up 0.9 per cent to 15.2 million and STB is forecasting 0-3 per cent growth to between 15.2-15.7 million visitors this year.

STB has also projected 0-2 per cent growth in tourism receipts in 2016 at S$22-22.4 billion - following a drop of 6.8 per cent to S$22 billion last year.

A hotel owner told The Business Timesthat while there is substantial supply of economy hotels coming up, those that will be most impacted will be in inferior/secondary locations.

He said: "However, economy hotels in well-located places in Singapore such as Orchard Road, Clarke Quay, etc still seem to be doing well as they are benefiting from guests downgrading from an upscale or a mid-tier hotel to an economy hotel due to corporates cutting costs."

kalpana@sph.com.sg

This article was first published on March 17, 2016.
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