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The nation-state of Singapore is high dependent on business travelers for its hotel sector growth and that dependency is now dragging it down. Time for diversification, but how?
The best may be over for Singapore’s booming hotel market as tightening corporate budgets and bank job cuts leave more luxury rooms empty, crimping profits at firms such as CDL Hospitality Trusts.
Singapore runs neck-and-neck with Hong Kong for the title of the world’s busiest hotel market, with both boasting occupancy rates that exceeded 85 percent for 2011, according to the two cities’ tourism boards. That’s higher than in global tourist hot spots such as New York and London.
Hong Kong’s occupancy rate may pull ahead of Singapore’s in 2013, largely because it has fewer new hotels slated to open. If Singapore’s demand stays lukewarm next year, as many hotel operators expect, room rates and profits will slip.
“We will see a slight drop in occupancy rate (in Singapore) mainly due to new supply that is about to come on board in 2013,” said Jonas Ogren, Asia director at hotel data provider STR Global, based in Singapore.
“In Hong Kong, we are not seeing so much new supply coming on board, which means the hotels that are already there will continue to do better and better.”
The supply of four- and five-star hotel rooms in Singapore is expected to increase by 17.4 percent from 2011 to 2014, while Hong Kong’s will grow by just 13.5 percent, according to real estate services firm CBRE.
The city-state’s high-end hotels have been hit harder than moderately priced rooms, which suggests that weaker corporate travel rather than tourism is weighing on demand. September’s occupancy rate for upscale and luxury rooms dipped to an average of 81 percent, compared with 86 percent for mid-tier accommodations.
Far East Hospitality Trust, which operates 11 hotels and serviced apartments in Singapore, said some customers were downgrading to cheaper rooms.
“The uncertainty in the West and the slowdown in businesses in certain sectors have caused some to cut back on the deployment of expats and corporate travel,” Gerald Lee, Far East’s chief executive, said in a telephone interview.
“Impact from the financial sector is the most visible,” he said.
Demand has eased at Far East’s Regency House serviced apartments, a popular choice among visiting or relocating bankers who can rent three-bedroom suites by the month.
CDL, which owns four- and five-star hotels in Singapore, reported weaker-than-expected results on Oct 30 and said its revenue per available room slipped to S$209 ($170) in the July-September quarter from S$217 in the previous three months. That was the highest rate since the second quarter of 2008, just before the Lehman Brothers bankruptcy sparked a global recession that crushed hotel demand.
CDL blamed slowing corporate and conferences demand for the sluggish performance.
A booming financial services industry and the launch of two new casino resorts in 2010 helped Singapore’s hotels come roaring back after the global financial crisis, which drove down the occupancy rate to just 76 percent in 2009.
But banks have cut jobs and casino revenues have softened.
Other hotel operators, including Hotel Properties Ltdwhich owns the Four Seasons and Hilton hotels here, are cautious and blame the worsening business environment as the main culprit.
“Singapore’s hospitality sector may close the year on a weakened note,” Overseas Union Enterprise Ltd, which owns Marina Orchard on Singapore’s main shopping belt, said in its third quarter earnings statement.
Southeast Asia booms
While’s Singapore’s hotel market slows, other parts of Southeast Asia are picking up.
Thailand’s top two hoteliers, Minor International PCLand Central Plaza Hotel PCL, are benefiting from an expanding economy and a recovery from last year’s flooding.
Investors have pushed the shares to record highs. Shares of Central Plaza have more than doubled so far this year, while Minor has surged 87 percent versus a 25 percent rise in the broader index.
Units of CDL are up 17 percent on the year, but they have dropped 9 percent since the company released its weaker-than-expected third-quarter results on October 30.
In Indonesia’s capital, Jakarta, Jones Lang Lasalle expects average revenue per available room to rise 15 to 20 percent this year versus 10 percent for Singapore.
“Jakarta is going through a big growth spurt, underpinned by a strong economy. (Multinational companies) are expanding, and there’s increasing demand for hotels and serviced residences,” said Tom Oakden, executive vice president of investment sales Asia at Jones Lang Lasalle Hotels. ($1 = 1.2227 Singapore dollars)
Additional reporting by Yimou Lee in Hong Kong. Writing by Anshuman Daga. Editing by Emily Kaiser.