Weak corporate demand drags on hospitality sector

RevPAR is estimated to be between -5.8% to -7.8% in 3Q.

With a forecasted 6.1% growth in hotel rooms and tepid economic growth outlook, hotel's revenue per available room (RevPARs) are expected to continue their decline, and especially so for hotels that rely on corporate demand, said OCBC Investment Research.

"For FY16, we note that while the growth in tourist arrivals has been robust (up 10.3% YoY from Jan-Aug) and will probably outstrip the forecasted 4.1% growth in hotel room supply for
the entire year, corporate demand has been tepid and the Singapore GDP growth rate forecasted to come in between 1% and 2%," it said.

The research house notes that RevPARs could only improve in FY18 with better supply-demand dynamics.

Looking at RevPAR trends by segment, OCBC Investment Research said that the Luxury and Midtier tiers looks most resilient for the Jan-Aug period, posting 0.0% and -0.8% YoY growth respectively.

"For the hospitality counters we cover, 3Q16 DPU growth ranged from -2.5% to -7.4% YoY, after adjusting for one-off items and equity financing," it said.

According to OCBC Investment Research, growth in hotel's RevPAR ranged between -5.8% to -7.8% in 3Q16, with all the REITs citing poor corporate demand as the reason for declines.

Growth in Serviced Residences (SR) revenue per available unit (RevPAU), meanwhile, ranged from -2.7% to -12.6% for 3Q16.

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