Investors eyeing Asia Pacific hotels
Posted on January 22, 2008
Filed Under Hotel
Global jitters of property credits have not impacted hotel market sentiments in Asia Pacific. This is evidenced by the fact that in 2007 total transaction volumes in the property sector rose by 90.2 percent from US$11.6 billion in 2006.
Judging from the results of a study conducted in mid-December 2007 by Jones Lang LaSalle the hotel market in the Asia Pacific region will likely be even more active this year. In its report, Hotel Investor Sentiment Survey, Jones Lang LaSalle concluded that investment enthusiasms in the hotel sector would thrive in Australia and the Asia Pacific region in general.
Hotel transactions in Australia reached Aus$1.4 billion in 2007, while in Asia Pacific, Japan’s hotel transactions were at the top with US$6.6 billion.
Investors in Asia Pacific view that short and medium-term hotel investments are entering a bullish era with positive sentiment will be almost twice the market sentiment in Europe and US. “Continued urbanisation and development in Asia has the potential to drive economic growth for many years to come and while many forecasts suggest a slowdown in the US, Asia is perceived to be relatively protected from this,” said Scott Hetherington, managing director of Jones Lang LaSalle Hotels for Asia.
Once the Asia Pacific market shapes up well, it will automatically draw the attention of global investors to come in. “Markets that investors would like to acquire in include Melbourne, Sydney, Macao, Hong Kong, Guangzhou, Chengdu and Beijing, Tokyo, Osaka, Singapore, Shanghai and Ho Chi Minh City,” said David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels.
While there is no change with Interest Rate of Returns (IRR’s), initial yields have appeared to be quite satisfactory to investors who want them. In the coming six months, investors expect initial yields only in four markets namely Manila, Bali, Fiji, and Singapore.
Indonesian hotel market
With regard to Indonesia, in 2007 its hotel market, especially for five and four-star establishments, has not shown any encouraging sign. With the operation of some new service apartment projects since 2004,the five and four-star hotels faced quite strong pressures. However, three-star hotels succeeded to increase occupancy rates because their room tariffs were far lower than those of five and four-star hotels. On the other hand, branded star hotels, boutique and non-boutique, experienced quite high occupancy in keeping with the needs of brand-minded business travellers.
It is undeniable that the apartments or strata title apartments in Jakarta leased by their owners at competitive prices has very strongly affected occupancy rates of five and four-star hotels, which were only 50-55 percent per year.
Data issued by Indonesian Hotels and Restaurant Association(PHRI) showed that in the first quarter of 2007 hotel occupancy rates in Indonesia averaged 45 percent. Assuming that star and non-star hotels in the Jakarta City have a combined 40,000 rooms, 16,000 hotels rooms in the capital were not occupied each night in that the quarter of last year.
This reality has pushed most five and four-star star hotels to cut their room rates, from US$100-140 to US$60-70, which was the same as three-star hotel rates whose occupancy rates were above 75 percent. If five and four-star hotel tariffs continue dropping, lowly average room rates will no doubt threaten the survival star hotels.
Aside from Jakarta, poor performance of hotel business was also experienced by hoteliers in other big cities. In Bali, star-hotel owners and operators saw a decline in their occupancy due to mushrooming new villas built and and then leased by their owners. While hotels and leased luxurious apartments in Jakarta still can compete with each other, villa lease prices in Bali stand much higher than room tariffs at area star hotels.
One thing to be carefully watched is the effects of falling tariffs at five and four-star hotels. Example, services at the hotels must fit their class. In practice, however, the quality of the services given to their guests is declining because hotel operators have to cut costs. But, branded star hotels still could raise their occupancy rates to above other star hotels.
Surely, the drastic fall in hotel occupancy rates should not be ignored. PHRI should take concrete measures without delay to increase star hotel occupancy rates, in cooperation with other stakeholders like the provincial government and Association of the Indonesia Tours and Travel (Asita). They should not wait until the market deteriorates.
Visit Indonesia Year 2008
The program of Visit Indonesia Year 2008 launched by the government, which includes 100 tourist events, is expected to boost the number of tourists coming to Indonesia. The government is optimistic that the program will be able to bring in seven million visitors although Indonesia failed to meet its targets of tourist visits in the past years.
Question remains whether US$15 million is enough for the program of Visit Indonesia Year 2008, enabling it to have a significant impacts on hotel industry growth in the country. PHRI argues however that despite the limited funding for global promotion of Indonesian tourism, in 2007 occupancy rates of star hotels in Indonesia reached 65 percent. With Visit Indonesia Year 2008, they are expected to rise by 10-20 percent.
PHRI estimates that averaged occupancy rates of five and four-star hotels can reach 65 percent this year, while many three-star hotels can record 80 percent with the domestic market as their main market.
In 2008, many investors will build new hotels, notably national hotel chains like Santika, Sahid Internasional, Aston and Aryaduta. Three-star hotels will emerge in Makasar, Medan, and Manado.
Meanwhile, five-star hotels will soon be put up in Palembang, Jakarta, Puncak (West Java), Sragen (Central Java), West Sumatra and Bali. This month, Hotel Sahid Bali will be totally renovated and turned into a convention hotel so as to tap business opportunities of meetings, conferences and exhibitions. Such opportunities will remain high in 2008.
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