DBS Group Research analysts have shared their outlook for the hospitality industry after revenue per available room (RevPAR) and average room rates began the year strongly and tourist arrivals aligned with full-year estimates in 1Q2023.
According to the analysts, RevPAR for 1Q2023 started the year strong at an average of $212, despite the first quarter of the year typically being a seasonally slow period for travel.
However, this was a 10% q-o-q dip from RevPAR’s peak — since the onset of the pandemic — of $236 in 4Q2022, which still translated to around 111% of normalised levels.
For the first quarter of 2023, average occupancy dipped 5 percentage points q-o-q to 78%, with seasonal travel patterns returning and the first quarter generally slow for both inbound tourism and domestic staycations.
Average room rates registered a similar pattern to occupancy, retreating 4% q-o-q to $272, or around 123% of normalised levels.
Meanwhile, monthly tourist arrivals broke the 1 million mark threshold in March, forming some 64% of monthly tourist arrivals for the same period in 2019, which came to 1.6 million.
See also: Test debug host entity
“With full-year inbound arrivals totalling 6.3 million in 2022 to exceed the upper bound of the Singapore Tourism Board’s forecast range, estimates for this year have been lifted to 12 million to 14 million total arrivals, or 68% of normalised levels, with first quarter statistics lining up with expectations,” say the analysts.
While DBS D05 expects a robust recovery for the hospitality REITs, it favours hospitality REITS CDL Hospitality Trusts J85 and Far East Hospitality Trust Q5T . DBS has “buy” calls on both counters with target prices of $1.60 and 75 cents respectively, amid both REITs reporting a surge in its latest results, as well as them being a key proxy to Singapore’s tourism recovery.
Meanwhile, China, Singapore’s largest inbound market before the pandemic, announced the reopening of its borders in December last year, with January the first month during which China’s international borders were reopened, and recovery was seen at an “exponential trend” from a low base, they note.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
For the quarter, Chinese-origin arrivals were in the range of 9% to 20% of 2019 levels. With notable supply side constraints from Chinese airlines as well as lagged effects from passport renewals amongst Chinese citizens, the DBS analysts believe the return of Chinese tourists will make a more “meaningful recovery” beginning end-2Q2023.
Pre-pandemic, China formed 19% of Singapore’s visitors, the highest source of visitor arrivals, with Indonesia, India, Malaysia, and Australia, forming 16%, 7%, 6% and 6% respectively, to round out the other top arrival sources.
On room inventory, the small portion that remains under government block booking has been negotiated on ongoing market terms, which would come in at close to double the previous rates signed by hotels under the government block booking system.
There currently remains approximately 5% or below of total hotel room supply that is still held under government contract booking, with total available room nights flat q-o-q.
The analysts say that the hospitality supply outlook remains “tepid” with only a 2.1% compound annual growth rate (CAGR) expansion in the number of total rooms to be completed from end-2021 to 2025.
A significant proportion of these hotels are in the upscale and luxury segments of the hospitality sector and located within the city centre, accounting for 43% and 32% of the expansion, respectively.
Key notable projects include Hilton Singapore Orchard, which rebranded from Mandarin Orchard, with 1,080 rooms relaunched in 1Q2022, and Club Street’s Worldwide Hotels, with 987 rooms in 2023.
Banyan Tree’s first Singaporean property, which will have 338 rooms, is also expected to open later this year. Further down the pipeline, Mondrian Hotel Singapore and Somerset Liang Court Redevelopment are set to open with 302 and 669 rooms in 2024 and 2025, respectively.
