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HICAP: CBRE’s positive outlook

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CBRE Asia Hotels released its latest MarketView outlook at HICAP this week, which reveals hotels across the region showed showed resilience in the first eight months of the year, despite global economic uncertainties and increasing pipeline supply.

According to CBRE, at the same time there has been an increased activity on the part of purchasers and this is driven by the weight of capital in the region and the requirement for assets with genuine growth potential.

For the first eight months of 2013, the top three cities with the highest RevPAR growth in USD were Bangkok, Jakarta and Taipei.

However, the analysis of hotel performance in USD terms has to be treated with caution, given recent fluctuations of exchange rates.

In Bangkok, the upsurge in RevPAR has been driven mostly by improving occupancy rates. This is partly due to the rapid rise in visitors from China.

In fact, CBRE Hotels expects that Thailand could even see a close to doubling of visitors if the discussed visa waiver between comes into effect.

Subject to supply issues this should lead to better financial performance and hence a firming of values in the city.

A recent survey by Mastercard has found Bangkok, Thailand to be the top global destination in terms of visitor numbers for 2013, the first time an Asian country has topped the list.

In Jakarta, RevPAR reached IDR$743,087 in the first eight months of 2013, representing a 17.3% y-o-y growth.

Jakarta has been performing consistently, due to governmental efforts to position the capital as a hub for multinational companies to set up their base offices.

As demand for office space in Jakarta continues on its upward growth trajectory, corporate demand will continue to contribute to Jakarta’s strong hotel trading performance.

In Taipei, tourist arrivals have been growing continuously due to the improving economy and deregulation of tourism policy in relation to Mainland Chinese visitors.

RevPAR increased by 3.0% to TWD$4,042 while ADR increased by 14.2% in the first eight months of 2013 from the preceding period to TWD6,108.
Singapore and Hong Kong registered slight declines in RevPAR, following slight dips in occupancy levels in the first eight months of the year.

As at the end of August 2013, Singapore’s RevPAR recorded SGD$247.99, a 1.0% decline year on year. The recent tightening of the quota on foreign workers will put pressure on costs.

Hong Kong’s RevPAR fell 2% to HKD$1,530. However, this is not a concern as both markets that both markets operate at above 80% occupancy, often nearing full capacity.

Both these markets have been subject to exceptional investor interest and yields have tightened from their already low levels.

The average daily rate (ADR) in locations such as Tokyo and Jakarta saw large increases (+9.8% and +17.5% respectively) in local currency terms, compared with the slower growth in USD (-4.9% and 9.9% respectively).

Japan has seen a rapid rise in hotel values and transaction levels since the introduction of ‘Abenomics’ and following the recovery from the Tohoku tsunami.

The Average Daily Rate in the rest of the region saw slight movements – Singapore’s ADR grew marginally by 0.2% while Hong Kong’s fell by 1.1%. Nevertheless, Singapore’s and Hong Kong’s hotels are performing well above the regional average.

Southeast Asia, in particular, was the fastest growing submarket with a 12.0% y-o-y rise in arrivals, bolstered by buoyant travel demand in destinations such as
Thailand, Cambodia and Myanmar.

There is still a lot going for Southeast Asia as a region; the emerging markets as attractive tourist destinations, the more mature markets of Singapore as an established commercial hub.

A large pipeline, an estimated 401,000 hotel rooms, will be completed in Asia Pacific over the next two to three years. Upscale hotels account for the largest share at 25.5% (102,250 rooms) followed by the upper-upscale segment at 22.8% (91,300 rooms). In addition, proposed hotel developments in the luxury segment make up 17.6% with 70,600 rooms. In some markets, however, hotel stock is expected to grow by over 20% from the 2012 levels, raising possible concerns of oversupply.

“The sophisticated traveller is increasingly discerning,” said Robert McIntosh, Executive Director, CBRE Hotels Asia Pacific. “Should hoteliers be able to price the new hotels, particularly the upscale ones, correctly, there should not be too much pressure on the daily rates and occupancy.”

Between 2013 and 2015, Bangkok and Hong Kong are expecting a pipeline growth of 3% per annum while Bali and Singapore are expecting a 6% growth per annum. This is in contrast to fast growing hotel markets such as tier 2 cities in China, which is experiencing a higher growth rate of between 25% to 75%.
Driven by resilient fundamentals in the hospitality sector, investors’ sentiment remained upbeat and the investment market recorded total sales volumes of approximately USD$4.5 billion for the first nine months of 2013. Going forward, investment activity is likely to pick up in Q4 2013 as several large deals are in the final stages of negotiations.

“The increasing amount of inter and intra-regional capital flows has pushed down yields and forced up prices in the strong markets of Tokyo, Hong Kong and Singapore,” said Art Buser, Executive Managing Director, CBRE Hotels Asia Pacific.

“As that phenomenon prices some buyers out of international gateway cities, the target becomes the next tier of hotel markets.

“Buyers are looking to other markets such as Bangkok, Phuket, Jakarta and parts of Vietnam and Sri Lanka.

“Emerging markets are now attracting international capital at levels not seen recently.

“Because the investment markets are efficient, buyers waiting for great deals will be disappointed. The only great deals are in the rear view mirror.

“As we remind investors, for many Southeast Asia markets, if you don’t like the price today, it will be more tomorrow,” Buser said.

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