Boutique hotels facing major headwinds

Boutique hotel owners are being forced to make some tough decisions as various challenges loom ahead.

A tighter labour market, rising costs, a growing supply of hotel rooms, and a strong Singapore dollar are fanning major headwinds for Singapores hospitality sector, reported The Straits Times.

The Singapore Tourism Board revealed that 10,530 hotel rooms are being built or planned for development in Singapore as at Q3 2015.

JL Asia, which manages The Porcelain Hotel in Mosque Street and Kam Leng Hotel in Jalan Besar, plans to seek growth opportunities abroad in the next two years. Specifically, the company is looking at expanding in Malaysia, where it also runs Hotel Soleil near Bukit Bintang in Kuala Lumpur, and penetrate the new markets of Japan and Thailand.

It is not easy to find a new site in Singapore. Prices of properties have moved forward since 2010, and it is also getting expensive to lease, explained its Chairman Jason Lee.

Meanwhile, investment cost has also increased from around $300,000 per room based on an average room size of 13 sqm when the company entered the market in 2010, to $800,000 due to more expensive materials and land, he said.

He noted that while The Porcelain and Kam Leng enjoyed occupancy rates of around 90 percent in 2015, room rates dropped by about five to 10 percent due to the slower market and rising competition.

With this, Lee believes that more needs to be done in order to attract visitors.

The casinos have been around for over five years now; the F1 race has been here several years. So there is a need to think of new ideas - maybe more high-profile events or new attractions.

Loh Lik Peng, one of the first movers in Singapores heritage boutique hotel segment, also expects some pressure on room rates.

In 2003, Loh opened Hotel 1929 in Keong Saik Road. And while it has already been sold, he continues to manage the hotel along with other signature inns Wanderlust in Little India and the New Majestic in Bukit Pasoh Road under Unlisted Collection, where he serves as a director.

He revealed that the three hotels posted an average occupancy rate of about 80 percent despite the presence of more players. However, Unlisted Collection is unlikely to embark on new investment ventures over the next 12 months.

Homegrown brand Hotel Clover, on the other hand, is looking to open one hotel in Singapore this year, and one each in Shanghai and Bangkok.

According to Group Vice-Chairman Lee Soon Tai, the company will be more active in seeking growth opportunities in Thailand and China and is also considering Myanmar and Indonesia. In fact, he is excited about their project in Shanghai, which is located near Disneyland.

There is a slowdown, but there is a huge local market - that's why we are going in, he said.

The three boutique hotel operators believe that keeping operations lean and staying nimble will be key to weathering tough times. Initiatives may include outsourcing certain functions like laundry services as well as having employees take on multiple roles.

Being boutique hotels, we are more flexible. We can make decisions and change policies easily, unlike the big boys, noted Dr Lee.

I feel there is that resilience in our industry, but we don't take anything for granted. Who knows what's around the corner? added Loh.

Image: The Porcelain Hotel in Singapore.

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg

More from PropertyGuru:
Private home prices down 3.7% in 2015
HDB resale prices down 1.5% in 2015
New flats are still affordable: HDB
GCB sales on the rise