Uncertainty remains, but Asia Pacific hotel market looks promising

By Soo Jin

The year 2010 certainly saw a strong recovery in the Asia Pacific economy. The real GDP across the region grew by over 8 percent, and the economy seemed to weather the storm of the global financial crisis.

This year also started with high hopes as the Asia Pacific economy successfully adjusted from recovery to solid expansion, largely supported by the strength of domestic demand and robust exports in the region.

Thus far in the first half of 2011, the Asia Pacific economy has remained the locomotive of global growth. Certainly, concerns exist as the growth momentum has begun to ease through 2011 and the uncertainties in the global economy have persistently mounted across the globe. The Asia Pacific economy is still believed to remain favorable, but at a slower pace.

Tourism has also been a great contributor to regional economic growth. Especially, several landmark events in 2010 such as the opening of the iconic Marina Bay Sands and Resorts World Sentosa in Singapore and the hosting of the 2010 World Expo in Shanghal, China, helped to boost tourism across the region.

Supported by the resilient economic recovery in the region and robust tourism demand, the regional hotel sector also showed strong recovery.

According to recent research, most key cities ― except Bangkok, which suffered from a violent street demonstrations and recent floods, and Tokyo, which also experienced a slump due to the great east Japan earthquake ― showed improved performance in the hotel sector with both occupancy levels and average daily rates on an up-trend.

Although each city’s performance in the hotel sector varies, the overall performance in 12 major cities in the region experienced double-digit growth ― up 16 percent to 17 percent ― in revenue per available room in 2010.

Mature markets like Singapore and Hong Kong showed enhanced trading and are likely to show a stable trading performance in the near future. China and India, which witnessed the most number of hotel openings across the globe, are likely to continue to show the most robust pipelines.

The issues with over-supply which worsened during the global recession still remain, yet the demand is believe to rebound and support the supply at par level as those markets strongly establish themselves as destination along with the increased economic power in the region.

The trading performance in Tokyo already shows signs of recovery from the slump due to the drastic earthquake. The emerging markets like Ho Chi Minh City and Colombo show strong potential for growth along with the increased destination awareness and strong government support for tourism.

Seoul is also picked as one of star cities with remarkable growth in hotel performance. The foreign arrivals strongly increased over the last couple of years especially due to those from China.

The favorable depreciation in the Korean won in the recent years also boosted the tourism demand and the government’s promotion on the nation’s tourism industry also supported the hotel sector.

While the demand strongly grows, new supply has been limited so far; as a result, the hotel sector enjoys strong trading performance improvements, recording continuous double-digit growth in revenue per available room over the last 3 years.

Encouraged by the favorable trading performance of the sector, the city now expects new supply planned in the medium term. Hence, there will be cyclic dynamics around supply and demand in the medium to long term, yet the performance outlook is expected to be promising in short term.

Considering such dynamics in each city, our analysis shows that the steady growth in hotel sector across the major cities in Asia Pacific continues throughout 2011 and till 2012.

Better performances should lead to improved capital value for existing assets and the region is likely to provide more attractive opportunity for investment as the global economic recovery proceeds.

There is no doubt that risks associated with uncertainties in macro and micro economic environments exist which might cause fluctuation in demand. However, the Asia Pacific region is demonstrating to have strong market base so far. As such, our outlook for the region remains positive in overall terms.