A tale of two tourists: Singapore tourism suffers lower hotel room rates

Despite the boom in tourist numbers.

Something strange is happening to Singapore’s tourism industry that is resulting in increasing tourist numbers resulting in lower hotel and serviced apartment revenue. By all accounts, 2016 was a good year for tourism in Singapore, with arrivals up 10.3% for the first eight months of the year. One could have expected that hoteliers would have done well out of this tourism boom. After all, hotel room supply increased a mere 4%, so all things being equal there were more tourists chasing fewer rooms.

But instead of average hotel room rates rising, they plummeted, by -5.8% to -7.8% depending on which chain. And the serviced apartments didn’t fare any better, with revenue per room dropping from -2.7% to -12.6%, again depending on the chain, for 3Q16. So what is going on?

In a nutshell, Singapore is now a tale of two tourists, one being the business traveller who is just not coming like he or she used to, and then there are the regular holidaymakers. But an additional spanner in the works is that less of the well-heeled luxury spenders are coming and more of the budget airline passengers are arriving, and possibly tourists are staying with friends rather than normal hotel accommodation. 2017 will see yet more new hotels opening in Singapore adding an additional 6.1% to total room supply. So how are the major groups viewing the market?

CDL Hospitality Trusts told analysts at OCBC they faced a competitive trading environment due to new hotel supply and softness in corporate travel, particularly for the meetings and conference businesses, as well as Zika and a weaker F1 which hit corporate travel.

Far East noted the supply of about 2,500 new hotel rooms also put pressure on rates but the bright spot was serviced residences where average occupancy remained healthy at 90% albeit at slightly lower rates. Another bright spot was at the Mandarin Orchard where a decline in hotel room revenue was partly made up for by an increase in F&B consumption.

Another interesting change in the market was the relative decline in one- and two-star hotels. For Jan-Aug period, economy tier hotels saw -3.8% growth in RevPAR, whilst luxury and midtier segments seemed most resilient YTD posting 0.0% and -0.8% YoY.

One thing is certain for Singapore’s hoteliers is that unless things pick up with either the economy or new tourist-driving attractions to Singapore, local hoteliers may remain with more empty rooms.