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Asia Pacific hotel industry is resilient and will bounce back

Ravi Philemon

Asia Pacific hotel industry is resilient and will bounce back as the impact of COVID-19 lessens

  • Overall room occupancy and average daily rate (ADR) for Asia Pacific hotel industry decreased to 42.1% and US$97.86 respectively in Q1 2020, levels not witnessed even during the global financial crisis for Asia Pacific hotel industry
  • In local currency terms, Bali, New Delhi and Sanya were the only Asia Pacific hotel industry markets that witnessed year-on-year (YOY) increases in ADR in excess of 1.0% in Q1 as these markets perhaps entered lockdown later than most
  • Hong Kong, Osaka and Shanghai were the only Asia Pacific hotel industry markets that saw double-digit YOY declines in ADR during the period
  • Expect government stimulus packages and strong medium to long-term fundamentals to provide cushioning to short-term impacts
  • We will witness a slew of refinancing and some distressed assets as a result. Near term, those with cash and lower leverage will prevail in the Asia Pacific hotel industry
  • Increase in the number of cross border enquiries for Singapore and other key urban and resort destinations, as investors (both private and owner operators) see this as an opportunity to take advantage of any possible/anticipated pricing dislocation in those markets.
Asia Pacific hotel industry

Image credit: Bay Hotel Singapore-Facebook

Colliers International a global leader in commercial real estate services, today released the Hotel Insights Q2 2020 report, a quarterly digest of key trends in the hospitality sector.

Govinda Singh, Executive Director and Head of Hotels & Leisure for Valuation & Advisory Services, Asia, commented: “Due to the imposition of travel restrictions, lockdowns and border closures by governments across the world in response to the novel coronavirus (COVID-19) outbreak, hotels across Asia Pacific had lacklustre performance in Q1 2020. Our global economic outlook, as well as our outlook for the hospitality industry in the region, is expected to remain muted in the near term given the ongoing uncertainty.

However, we expect the robust government stimulus packages, policies and strong economic fundamentals to provide some cushioning to short-term impacts and to place the hospitality industry in a strong position for when the eventual recovery occurs.”

Performance across Asia Pacific hotel industry hurt by COVID-19 versus SARS in 2003

Hotels in China, Hong Kong and Taiwan have been severely affected by COVID-19, with occupancy rates in China dropping to as low as 7% in February 2020. This steep decline was felt across all hotel tiers, with mid-scale and lower tiers experiencing the steepest drop. The impact of SARS on hotel performance in 2003 was comparatively less severe and hotel room occupancies in key Asian cities rebounded strongly following the easement of travel restrictions. However, China’s outbound tourism expenditure has increased sharply since 2003 to become the world’s top source of outbound tourism expenditure; the impact on tourism from a slowdown in China’s economy, alongside a decline in the number of outbound tourists from China, has been deeply felt across the region.

Expect a return to historically trusted hotels post-recovery

It is unclear whether a strong rebound for the hotel industry in Asia Pacific will occur in the near term; however, they recommend hoteliers take this time to review their business strategies and position themselves for the eventual upturn. Hotels should adopt a proactive approach towards communication to maintain confidence amongst stakeholders and Colliers expects a return to historically trusted brands. Colliers does not encourage hotels to drop room rates as it is unlikely to drive occupancies and hotels will take even longer to recover.

Instead, they suggest hotels take a more judicious approach to developing pricing strategies. Furthermore, while it’s an easy decision to put off decisions on capex now, those who have put away their FF&E reserve should not pass up the opportunity to refurbish when they can. This will ensure a higher return on investment when the upturn does come.

Wellness industry will rebound and is expected to thrive

Even though the wellness industry has been affected by COVID-19 due to restrictions on travel and social distancing measures, it will continue to play an important role in the long term as it has already become a way of life for an expanding set of consumers. We expect interest in wellness practices – particularly fitness, mindfulness, stress reduction and wellness retreats – to increase as consumers become more concerned with boosting immune systems post-COVID-19. It is likely, however, that the industry will operate differently; safety and hygiene will be more of a focus and digital platforms to minimize unnecessary contact will become more prevalent.

Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “Covid-19 will accelerate the speed of disruptions in all sectors and the Asia Pacific hotel industry will be no exception.”

A recent report by JLL said that hotels investors and owners across Asia are seeking greater access to debt financing to bolster cash flows as they face an unprecedented period of historically low occupancy rates, closed borders and severe limitations on air travel due to the ongoing COVID-19 pandemic. The impact of COVID-19 on the hospitality industry across Asia continues to be significant, with many hotel investors and owners witnessing an unparalleled cash crunch as significantly constrained revenues struggle to offset fixed costs.

Travel restrictions are forcing owners to look at an array of short-term financing options, but with abundant investment capital still available to be deployed, this temporary dislocation is expected to also create new opportunities.

In Asia, only a select few destinations and properties are achieving meaningful demand often by providing quarantine facilities or accommodations to support other government initiatives.

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