Asia: Soft revenue growth should rebound in 2014

The Asia Pacific region is on track for another record year of international tourist arrivals in 2013, according to a new report released by Cushman & Wakefield, Singapore.

The Asia Hotels View 2014 revealed that estimates showed an 8% growth year-on-year in the first half of 2013. Last year, 221.5 million international tourists visited Asia, which was 7.2% higher than in 2011. Of all the sub-regions, Southeast Asia took the lead with a 9.9% year-on-year increase in arrivals.

Singapore’s strength

Akshay Kulkarni, regional director for Cushman & Wakefield said Singapore has seen an addition of about 3,500-plus rooms, yet the operating numbers seem to show little or almost no stress.

“The capital values are up – which obviously means people are still bullish about the hotel markets and see an upside,” Kulkarni said. “There is still supply that is going to hit the market, which means that the future demand is not in question… Capital values will continue to rise as there will be a premium to be paid for Singapore’s stability. Measured supply potential will ensure that vacancy is not high. However, profitability over the next few years may be affected by the rising costs of manpower, which could affect margins.” 

Mixed results

In 2013, hotel performances in the region have been mixed. With the dramatic influx of new hotel rooms in the recent few years, there has been some price relief observed in some markets such as Singapore and Shanghai.

On the other hand, some emerging markets like Dhaka, Yangon and Colombo with limited high-end hotel stock amid strong tourism demand are enjoying strong revenue growth presently. Overall, Asia-wide RevPAR is expected to fall below 2012 levels, although performances will vary across markets.

Kulkarni added that several hotel markets have had a large supply influx of rooms in the past year or so. This has led to region-wide RevPAR levels falling in the first half of 2013 due largely to declining occupancy levels. “However, we expect much of the excess supply to get absorbed soon on the back of strong tourism demand,” he added. “As occupancy starts increasing, we will see room rates rising upwards in most markets. RevPAR growth in Asian hotel markets is expected to turn positive in 2014. The only exception is likely to be Seoul, which is seeing an unprecedented pipeline of least 15,000 rooms over the next two to three years, doubling the current supply.”

Investment outlook

The hospitality investment market in Asia has seen a substantial weight of capital investing in Japan, Singapore and China so far this year. For the 1H 2013, total investment volumes of value of hospitality assets, closed or contracted, have reached US$5.16 billion. This is an increase of over 53% from the same period last year. Including preliminary data from Q3 2013, total investment volumes year-to-date has reached US$8.14 billion. 

Cushman & Wakefield expects the 2013 investment volumes to reach US$10-12 billion. This would make 2013 a record year for hospitality investment after the global financial crisis.

Kulkarni added, “Expect 2014 to equal or come close this year’s level in terms of transactional activity. Japan’s investment market will undoubtedly improve further and lead the pack, due to strong corporate demand and greater investor optimism arising from Abe’s economic reforms. Less transactional activity is expected for Singapore after a busy year. Similarly, levels in China could come down due to pricing mismatch and differences in buyer and seller expectations. India, Thailand, Indonesia and to some extent, Philippines could see more exciting times ahead with some major transactions to be closed. Emerging countries such as Myanmar and Sri Lanka have recently become viable investment destinations due to improved political stability.”