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Nikkei Markets

Singapore hotels poised to recover as room glut eases

Busy calendar of events, intra-regional travel to support demand

SINGAPORE (Nikkei Markets) -- Going by their latest earnings, Singapore hotels are starting to benefit as fewer rooms are added to the market and visitors to the city-state increase.

Although competition remains intense, a more active calendar for conventions and events as well as other developments could boost the number of higher-paying corporate guests, strengthening revenue.

Many prime hotels and serviced residences in Singapore are owned and managed by listed real estate investment trusts, some of whom also have interests in other countries.

Late in April, CDL Hospitality Trust, Singapore's largest hotel REIT, said that revenue per available room for its six Singapore hotels rose 0.8% in the first quarter to 161 Singapore dollars ($120.6), partly supported by the biennial Singapore Airshow in February, even though occupancy edged down.

It was the second consecutive quarter of growth in per-room revenue, or RevPAR as the performance measure is known. In the fourth quarter last year, RevPAR rose 1.1%.

CDLHT is managed by a unit of City Developments' U.K.-listed Millennium & Copthorne. Its domestic portfolio includes Orchard Hotel in Singapore's prime shopping district, Grand Copthorne Waterfront Hotel, M Hotel in the financial district, and Novotel Singapore Clarke Quay near the Singapore River.

Looking ahead, the trust pointed to positive demand drivers for the hospitality industry this year, besides the return of biennial events.

Singapore's chairmanship of the 10-member Association of Southeast Asian Nations is set to increase the bloc's gatherings in the city state while visitor numbers could benefit from the decision of Australian airline Qantas to move its transit hub back to Singapore from Dubai in March.

Meanwhile, any threat from short-stay platform operators such as Airbnb seems distant. Based on existing rules, the minimum period for which private apartments can be let out is three months. Proposals in the government's consultation paper on home-sharing rules are so stringent that few expect any real threat to the hotel industry. One such proposal is to allow Airbnb-style rentals in condominiums, provided 80% of owners agree.

At OUE Hospitality Trust, the tony Mandarin Orchard posted a 6.9% growth in per-room revenue in the first quarter, its fourth straight quarter of increase while its Crown Plaza Changi Airport hotel saw the measure rise 13.6% on-year in the same period.

Far East Hospitality Trust, which owns eight hotels and four serviced residences in central areas of Singapore, said RevPAR for its hotels rose 3.3% on-year in the first quarter while that for its serviced residences rose 7.6%.

In a recent note, OCBC Investment Research said it expects per-room revenue growth to accelerate further across the industry in coming quarters.

After declining 11% between 2012 and 2016, RevPAR stood at S$190.3 for the first two months of this year as against S$182 at the end of last year.

The hotel sector's pickup comes after a tough few years when the number of rooms in the city-state surged following government land sales that resulted in a building spree even as the economy hit a soft patch.

More than 6,000 hotel rooms were added between 2015 and 2017, bringing the total to 67,000 by last year's end, according to data from the Singapore Tourism Board.

DBS Group Research said in a March report that it expects room supply to grow just 1-2% per year until 2020 as compared to 4-7% growth between 2014 and 2017.

In fact, Benedict Lim, managing director for Southeast Asian real estate at Ernst & Young, sees a "happy problem" for Singapore hotel owners in the next three years as he expects some pressure on the supply of rooms.

Real-estate agency Colliers International pointed to a shortage. Despite the substantial growth, Singapore still needs a significant number of rooms, particularly in the mid to lower-end of the market, to keep pace with tourist numbers, it said in a late April report.

Tourist arrivals, which hit a record 17.4 million last year, grew 7.3% on year in the first two months. STB has forecast the total to rise to more than 18 million this year.

Although the trade-related tensions between the U.S. and China could weigh on business and consumer confidence, especially if they escalate, intra-Asia travel and the growing domestic market in many larger Asian destinations are likely to continue to underpin demand, Colliers said.

--Leslie Shaffer

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