Hotel RevPAR expected to rebound in 2022 and climb more gradually in 2023
By Timothy Tay
/ EdgeProp Singapore |
Singapore’s average hotel RevPAR is expected to come in at $179 for 2022 on the back of a marked increase in tourist arrivals. (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - The easing of international travel restrictions in 2022 has accelerated the recovery of the hotel industry in Singapore. The return of large-scale MICE (meetings, incentives, conferences, and exhibitions) events has helped many hotel operators claw back revenue per available room (RevPAR) to close to pre-pandemic levels.
According to statistics from the Singapore Tourism Board (STB), the average RevPAR among Singapore hotels stood at $191.96 in 2019. This slipped significantly to $88.59 in 2020 before gaining slightly to $91.60 in 2021. The average RevPAR recovered to $177.42 as of end-October 2022.
The current RevPAR is 93% of the RevPAR recorded in 2019, says Calvin Li, head of transaction advisory services, JLL Hotels & Hospitality Group. “This performance is better than expected as, since the lifting of the remaining travel restrictions, we have witnessed a significant pick-up in international travel to Singapore.”
Pipeline of Singapore-hosted events
Li says that there has been significant progress in the local hotel sector’s recovery this year with the lifting of border control measures and the rollback of safe-distancing rules in the first half of this year. He adds that this has helped to spur a sense of “revenge travel” among local consumers.
“With the easing of travel restrictions in the Southeast Asia region and globally, the second half of 2022 was rich in major MICE events in Singapore and among our neighbouring countries,” he says.
Notable events that took place this year that resulted in a noticeable uptick in international arrivals into Singapore were the F1 Singapore Grand Prix in October that pulled in more than 302,000 racing fans and spectators, and the Bloomberg New Economy Forum in November. Meanwhile, the G20 summit meeting in Bali, Indonesia, in November also helped pull in international visitors to the Southeast Asia region.
“The removal of the seven-day Stay Home Notice requirement for all non-fully vaccinated incoming travellers in August contributed to the further inflow of tourists,” says Lam Chern Woon, head of research and consulting, Edmund Tie. He adds that Singapore is in a good position to benefit from the ongoing tourism recovery due to its strong appeal as a key destination for leisure and business, with a strong pipeline of events.
Among the upcoming hotel developments is the refreshed
But the recovery has also been hampered by global economic headwinds such as a labour shortage in the hospitality industry; higher costs of utilities, F&B and labour; as well as international currency fluctuations, says JLL’s Li.
“We expect 2023 RevPAR to be boosted by a strong growth in average daily rate (ADR) to offset a lower occupancy level, which we believe will not exceed 2019-levels in 2023,” says Li. A hotel’s ADR is the average rental revenue earned for an occupied room per day.
Recovery reined in without Chinese tourists
The luxury segment recorded the strongest rebound this year, climbing from an average RevPAR of $194.73 in January to $497.65 in October. Meanwhile, RevPAR for hotels in the upscale segment moved up from $113.50 in January to $279.39 in October. Similarly, hotels in the mid-tier segment improved from $70.91 to $188.81 over the same period.
“We remain cautiously optimistic for 2023. The recovery will depend on the segment. Revenue in luxury hotels is expected to exceed 2019 levels in 2023, while the upscale segment should exceed pre-Covid levels too, boosted by a strong rate growth,” says Li.
He adds that the mid-scale and budget hotel segment might recover at a slower pace as these properties rely on group tours and mainland Chinese tourists.
According to STB statistics, mainland China accounted for the largest group of tourists in Singapore with 3.63 million arriving in 2019. This shrank drastically to about 111,180 as of end-October 2022. Arrivals from Indonesia are now the largest group of tourists this year with more than 906,900 coming into Singapore.
RevPAR for hotels in the upscale segment, such as Hilton Singapore Orchard (left) and Pan Pacific Orchard (second from right), moved up from $113.50 in January to $279.39 in October this year. (Picture: Samuel Isaac Chua/The Edge Singapore)
“Mainland China is an important market, as it was our top source market in 2019, accounting for nearly 20% of total arrivals for that year. The tourism recovery will undoubtedly be limited, should visitor flow from mainland China remain restricted,” says Lam.
Investment deals return in vengeance
Investment activity in the hotel property sector mirrored the strong rebound in international travel. According to a report by JLL, the total hotel real estate transaction volumes in the Asia Pacific region in the first nine months of this year hit US$8.4 billion ($11.39 billion), a 16% y-o-y increase.
Over the last 12 months, the largest hotel deal in Asia Pacific was the Hilton Millennium Seoul, which was sold by Singapore-listed property giant City Developments to South Korean fund manager IGIS Asset Management for US$929.8 billion. This translates to about US$1.37 million per key. The deal was completed in February.
This was followed by the sale of Hyatt on the Bund in Shanghai, China, by Chinese developer Shimao Group Holdings. The hotel property was sold to Shanghai Land Group, a property investment firm controlled by the Shanghai city government, for US$720 million in January this year. This is about US$1.14 million per key.
JLL expects hotel real estate investment for the whole of 2022 in the region to exceed US$10.7 billion. However, the demand for investment quality hotel properties in the region outstrips existing supply.
“Buyers continue to be active in mature markets like Australia and Japan, while looking selectively at leisure markets. In the second half of 2022, rising interest rates have affected private equity, which has been the dominant buyer over the last three years in Asia Pacific,” says Li.
Major transactions in Singapore
In Singapore, investment volumes in the hotel sector stood at US$923 million in the first three quarters of this year, exceeding the same period in 2019. JLL expects the local hotel real estate market to end the year with a total of US$950 million worth of investments.
The largest hotel deal in Singapore this year was the Orchard Hills Residences Singapore MGallery at 30 Bideford Road. The property was acquired by a joint venture (JV) led by mainboard-listed Boustead Projects for $515 million in June. The other partners in the JV are Roark Capital and Lim Teck Lee Investments.
The mixed-use property comprises hospitality, healthcare, and commercial components. It was owned by local private equity firm Sin Capital, which defaulted on a $110 million bond backed by the property. The Boustead-led JV picked up the property in a liquidation sale, at a 14% markdown from the listed price when it was put up for sale in December 2021.
Viva Land bought the former Sofitel So Singapore for $240 million in May. The sale works out to about $1.8 million per key. (Picture: Samuel Isaac Chua/The Edge Singapore)
Another significant hotel deal this year was the sale of the former Sofitel So Singapore by developer Royal Land Group to Viva Land for $240 million in May. The sale works out to about $1.8 million per key.
Viva Land also owns the neighbouring Robinson Point and has indicated that it is exploring “possible synergies” between the two properties, the company said in a press release announcing its May acquisition.
Despite a relatively short runway of recovery in 2H2022, tourism in Singapore is quickly gaining traction. As a result, investors have shown interest in hospitality assets, for which demand will continue to pick up going into 2023, says Edmund Tie’s Lam.
2023 and beyond
According to a report by Cushman & Wakefield, Singapore’s average hotel RevPAR is expected to recover to $179.60 for the whole of 2022, compared to $191.96 in 2019. The consultancy projects that RevPAR will increase to $186.15 in 2023, but that the local hotel market is likely to stay below pre-pandemic levels for now.
Some of the key tourism developments that will support the gradual recovery of the hotel market over the next few years have already been announced. For example, the Resorts World Sentosa expansion and Mandai Eco-tourism hub are scheduled to be completed in 2024. An expansion to Marina Bay Sands is also projected to be completed in 2026.
Future development plans include Changi Airport Terminal 5, the redevelopment of Pulau Brani as part of the Greater Southern Waterfront project, and the Jurong Lake District development.
“Between 2023 and 2026, 7,186 new hotel rooms should be added to the local market compared to 10,747 between 2016 and 2019,” says JLL’s Li. “We expect the market in Singapore to continue its recovery, without challenges on the supply side, although we note that there will be limited new developments in the city state.”
Based on URA data and research by Edmund Tie, a total of 5,482 new hotel rooms are in the pipeline between 2023 and 2025. About 55% of these are due to be completed in 2023, including the 987-room hotel development at 8 Club Street by Worldwide Hotels and the 350-room Pullman Hotel.
Subsequently, 18% of the projected stock will be completed in 2024, followed by the remainder in 2025. Future hotel developments include the redevelopment of Faber House, Moxy Singapore Clarke Quay, and the redevelopment of Tower 15.
“The surge in hotel completions over the next few years will coincide with Singapore’s evolving tourism landscape and cater to the projected rebound in demand for accommodation,” says Li.
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