Singapore's big business events put heat on hospitality sector

Hotel players are seeing a higher number of requests for proposals and rates getting firmer.

The tables are turning for Singapore’s hospitality sector, as occupancy and average daily rates (ADR) are expected to go up due to big business events and increasing Chinese and Indian tourist arrivals, UOB Kay Hian said in a report.

UOBKH analyst Vikrant Pandey noted that hotels are poised to benefit from more corporate activities in the pipeline, led by certain sectors like IT, pharmaceuticals, aviation, precision manufacturing and government sectors. “For serviced-residences, growth has been led by oil & gas, manufacturing and online platforms. Most hotel players are also seeing a higher number of requests for proposals (RFP) and rates getting firmer (or have guided for stable rates forward),” Pandey said.

The year 2018 has also been welcoming more biennial events. Singapore recently concluded the Singapore Airshow with over 48,000 attendees in 2016. It will welcome Food and Hotel Asia (with over 48,000 attendees in 2016) and OSEA (Asia’s largest oil and gas event with over 18,000 attendees in 2016). Singapore as the ASEAN chairman in 2018 will also host more foreign delegates with events and meetings lined across the year.

Aside from big events, the current robust demand for rooms is being driven by corporates and Chinese/Indian outbound travel. Pandey projects demand for room nights to grow 3.2% to 18.9 million rooms between 2018 and 2020.

“Our forecast assumes the following: a) sustained visitor growth (+3.0% over 2018-20) supported by growth in Chinese/Indian outbound travel and returning corporate demand, and b) average length of stay to stabilise at 3.5 days in 2018-20, supported by ‘Bleisure’ [business and leisure] travellers who build in extra nights into their work-travel itineraries into the weekends,” he added.

The analyst added that arrivals from China and India surged by 12.7% and 15.9% YoY in 2017, and together accounted for 53% of the total visitor growth in the past year. “Based on our channel checks, the bulk of the Chinese and Indian arrivals are leisure travellers in tour groups (which typically generate 10-20% less in room rates and are more volatile in terms of demand, compared to corporates),” he said.

UOBKH also noted that there are “hopeful” signs that backend-loaded supply injection in Q4 2017 is well-absorbed. “Seven new hotels (ie Intercontinental Singapore Robertson Quay, Sofitel Singapore City Centre, Courtyard Marriot at Novena, Andaz Singapore) opened in 4Q2017, resulting in 2,221 net new rooms (~69% of 2017 new supply) coming on-stream. As these new hotels seek to gain a foothold (amid lower occupancies at opening), we may expect some short-term competition,” Pandey said.

“However, our channel checks suggest that such competition was not too disruptive, relatively limited to properties in the vicinity of the new openings (i.e. Orchard area during 4Q2017) and capturing mainly the free independent travellers (FIT) segment,” he added.

The new hotels are also sticking to their price aspirations of $300-$350 per night, which is in line with their international branding. Pandey said that most corporate businesses are locked-in through the annual request for proposal (RFP), thus the corporate segment will continue to be insulated from pricing pressure in the near-term.

“The Singapore hotel market has also been accustomed to seeing its supply grow at a CAGR of 5% p.a. from 2014-17. Therefore, most industry players are cautiously optimistic that 4Q2017’s strong materialisation of new supply can be well-absorbed without igniting a price competition over room rates,” he said.

Also read: Chart of the Day: Hotel supply growth expected to dip to 1.2% in 2018

As a final point, Pandey noted that hotel occupancies are also improving towards 90%. “Hotel occupancy inched up by 1.6ppt to 84.7% in 2017, compared to the same period last year. We are optimistic towards the hospitality sector, supported by growing visitor arrivals and a tight supply pipeline. Our analysis shows that the 90% occupancy projected for 2020 translates into the absolute demand of 21 million room nights bought,” he added.

The brokerage forecasts ADR rise by 3% in 2018 and 3-5% from 2018 to 2020. RevPAR is expected to grow 4-9% in the next three years, driven by ADR pick-up and higher occupancies.