The tourism sector faced challenges due to the pandemic, with closures, low hotel occupancy, halted flights and fewer tourist visits. Despite this, strong government support ensured the sector’s survival. In June, 1.13 million visitors returned to Singapore for leisure and work, signalling a resurgence in the hospitality industry.
Although tourism has yet to recover to pre-Covid-19 levels fully, Singapore is organising events to attract tourists and revitalise the hospitality field. Its business and financial hub status also contributed significantly to the recovery, with rising corporate visitors attending conferences, trade shows, and industry events, supporting the hospitality and the meetings, incentives, conferences, and exhibitions (Mice) sectors.
On the horizon
Some upcoming events include the Singapore FinTech Festival in September, Asia CEO Summit in October and the Singapore Airshow in February 2024. Making a comeback are concerts: British band Coldplay’s six-day concert in January at The National Stadium sold over 300,000 tickets, while American pop star Taylor Swift’s six-day concert in March, also at The National Stadium, is expected to attract around 400,000 attendees.
These concerts may boost FY2024 distribution per unit (DPU) for hospitality REITs by up to 1.5%, say CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee. Online searches for accommodations in Singapore also surged as tickets went on sale.
Additionally, the F1 Singapore Grand Prix in September is expected to attract 49% foreign attendees. Assuming 30% of concert-goers are international visitors, they could boost hotel occupancy by between 5 and 8 percentage points during the concert days and nudge FY2024 revenue per available room (RevPAR) estimates by 1.5% to 1.9%.
See also: Singapore among top destinations as China gears up for Golden Week holiday
Research houses are positive on CapitaLand Ascott Trust (CLAS), CDL Hospitality Trust (CDLHT) and Far East Hospitality REIT (FEHT) — all of which have an “add” rating. According to Ong and Lock’s forecasts, Singapore accounts for 19%, 62% and 100% of their gross profit. Based on their sensitivity analysis, the two concerts could translate into potential FY2024 DPU upsides for CLAS, CDLHT and FEHT of 0.2% to 0.3%, 0.8% to 1%, and 1.1% to 1.5%, respectively.
Despite a slight q-o-q dip in RevPAR for hospitality REITs in 1Q2023, DBS Group Research remains positive on the hospitality segment prospects. However, DBS notes that the first quarter of the year is typically a seasonally slow period and 1Q2023 reported relatively strong numbers.
In 1Q2023, 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.
See also: Singapore sees Chinese visitors at 30% - 60% of pre-pandemic level
“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,” says DBS. While it expects a robust recovery for the hospitality REITs, it favours CDLHT and FEHT, key proxies to Singapore’s tourism recovery.
In December, China — Singapore’s largest inbound market before the pandemic — reopened its borders. Analysts observed that January marked the first month of reopening, demonstrating a recovery on an “exponential trend” from a low starting point.
In 4Q2022, Chinese-origin arrivals were only 9% to 20% of the levels seen in 2019. This decline was influenced by supply-side issues with Chinese airlines and delays in passport renewals for Chinese citizens. Still, DBS analysts are optimistic about a recovery in Chinese tourism, which they anticipate will begin from the end of 2Q2023. This recovery is expected to be noticeable during the upcoming results season.
‘Tepid’ supply
The hospitality supply outlook remains “tepid”, with a 2.1% CAGR growth in total room numbers from 2021 to 2025. Most expansions are in upscale and luxury segments, mainly in the city centre, comprising 43% and 32% of the expansion. Some key projects include Hilton Singapore Orchard on Orchard Road (rebranded from Mandarin Orchard), Pan Pacific Orchard on Claymore Road (which underwent an asset enhancement initiative or AEI) and the newly launched Pullman Orchard, also located on Orchard Road.
Frasers Hospitality CEO Chin Fen Eu has observed changes in tourists’ behaviour and travel patterns following the pandemic. She noticed that Frasers Hospitality’s hotels in cities like Singapore, Sydney and London saw the fastest recoveries following the reopening of borders. “Room rates are much higher than pre-pandemic because of pent-up demand. Most hotel room rates are about 30% to 50% higher than in pre-pandemic times, while occupancy remains about the same,” says Chin, who added that corporate demand returned very quickly.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Currently, the hotel industry enjoys high RevPAR. In June, Chin highlighted at the EHL Hospitality Business School hosted Hospitality Finance & Economics Conference 2023 that inflation drives up operation costs, affecting energy and staff expenses. These costs are passed down to guests, resulting in higher room rates.
The panel discussed two key points: Higher room rates are acceptable to tourists and they now opt for fewer trips, focusing on making the most of each journey due to high airfare and room costs. This means that stays are longer, and guests will pay more to be in a nicer room. “Hotel suites are mostly occupied and people are staying longer, about 30% to 40% longer, compared to pre-pandemic [times],” adds Chin.
A “bleisure” — a portmanteau of “business” and “leisure” — trend is thriving among tourists. It involves blending work and play during their trips, leading to longer hotel stays. This concept encourages travellers to extend their time for leisure purposes after fulfilling their business commitments.
Steve Carroll, head of hotels and hospitality, capital markets, Asia Pacific, CBRE, believes that hospitality REITs are undervalued. As the market recovers and China’s full reopening is on the cards, there is potential for further growth. Significant events like the F1 night races and concerts in Singapore are also expected to boost hotel room rates in the region.
