A muted supply increase in hotel rooms combined with the rise of demand from the leisure segment could work well for hotels' RevPAR.
Singapore’s hospitality sector could brace for an uplift through a growth in revenue per available room (RevPAR) starting Q4 which will spill over to 2019, OCBC Investment Research (OIR) said. This growth could be fueled by the steady demand growth paired with the little addition in terms of room supply.
Prior to Q4, the firm said that RevPAR growth figures in Singapore hotels were lacklustre. It noted that City Developments Limited Hospitality Growth (CDLHT) even recorded a RevPAR slip of 0.3% as it was affected by Orchard Hotel’s AEI offset by tepid growth from the rest of the portfolio whilst the RevPAR of Mandarin Orchard Singapore of OUE Hospitality Trust (OUEHT) saw a -3.7% growth amidst a high-base effect worsened by the cancelation of some Japanese tour groups due to the Osaka typhoon.
Meanwhile, Far East Hospitality Trust (FEHT) saw a RevPAR boost of about 3% in its wider portfolio in Q3. The figure is stretched to 6.6% if the Oasia Hotel Downtown is included.
OIR noted that the economy segment recorded the most resilient performance in terms of RevPAR trends in 9M18 as it grew 6.4% YoY. This was followed by luxury hotels (5.1%), mid-tier (3.1%) whilst the upscale hotels lagged behind (2.1%).
This RevPAR growth is in for a boosted increase with a muted growth in hotel room supply, OIR said, noting that only a 2.9% growth is expected according to a Horwarth HTL forecast. In total, only a marginal 0.1% room stock increase could be seen in 2018, 2.9% in 2019, and 0.9% in 2020.
“We note that the room supply grew at a CAGR of 5.1% (actual) from 2011 to 2017, vs. the 1.3% CAGR estimate from 2017 to 2021F,” OIR said. “We see 1.3% as a low handle/threshold for demand to outpace, and believe that the limited injection of supply in the next few years will pave the way for strong RevPAR growth.”
Amidst this backdrop of marginal increase in hotel room supply, OIR noted that 9M18 visitor days inched up 5.5% buoyed by the 7.5% growth in tourist arrivals.
“Looking forward to 2019, we expect overall demand to be led by robust growth in the leisure segment,” OIR said, noting that the efforts and investments by the Singapore Tourism Board could be crucial for the growth. “We are more cautious on corporate demand and expect it to remain muted in the coming quarters given uncertainty surrounding the trade war.”
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