Thailand - January 2010
SLOW AND PATCHY GROWTH IS
PREDICTED
by Greg Lowe -
Property Report Thailand
The year ahead for Thailand´s hotel and resort
development sector will witness a rebound from the impact
of the global financial crisis, local recession and
domestic political turmoil, according to property experts.
But while the outlook is less turbulent, growth will
remain anaemic and patchy, and project financing will
remain tight.
Occupancy levels in Thailand´s main destinations were hit
hard in the first nine months of 2009, according to the
latest research by Jones Lang LaSalle (Thailand).
Bangkok´s five-star sector fell by 26.8 per cent
year-on-year to 49 per cent, four-star properties dropped
by 25.6 per cent to 51.9 per cent, while Phuket City
contracted by 12.6 per cent to 58.4 per cent. Revenue
available per room (Revpar), the industry benchmark for
the financial performance of a property, declined more
sharply as operators slashed room rates to boost
occupancy. Bangkok´s five-star sector fell by 36.3 per
cent to Bt2,394, four-star hotels slid by 35.7 per cent to
Bt1,335, and Phuket City dropped by 25.6 per cent to
Bt2,296.
But there are signs of a revival in the market, according
to Peter Henley, Chief Executive Officer of Amari.
He said: “We saw signs of a slight improvement in terms of
occupancy in the final quarter of last year, so we are
cautiously optimistic. Whilst signs do indicate the start
of a recovery process, we do feel that growth in 2010 will
remain slow and patchy. Continuing new supply in Bangkok
is likely to hold back any real upturn in this market for
some time.”
Any such a glut of supply could significantly dampen the
recovery and undermine the sector´s long-term
profitability, according to Bill Barnett, Managing
Director of C9 Hotelworks, a hotel sector consultancy.
"Overbuilding is going to come back and hit the industry
in the coming years," he said. "Too many hotels are being
built on poor fundamentals. Ireland is a great example [of
the dangers of this] where with the downturn 25 per cent
of the industry is obsolete. There are warning signs, and
it is important to rail in unbridled development."
Increased financial risk and a crowded market at the
high-end has seen developers move towards cheaper
properties with reduced service levels. Recent economic
turbulence will also see the sector focus its efforts in a
narrower range of proven destinations, said Andrew
Langdon, Senior Vice President of Jones Lang LaSalle
Hotels.
"Hotel investors are focused on gateway cities and
established resort destinations only. There is a recent
recognition of the potential of limited service three-star
hotels with developers going forward focusing on this
market. Examples include ibis, Holiday Inn Express and all
seasons brands," he said.
Restricted access to credit and changing demand from
guests will see hotels continue to reduce in size, with
most offering between 80 to 150 rooms. Both independent
and international operators will also develop more
personalised brands, such as Starwood´s Aloft, Marriott´s
W, INH´s Indigo and ACCOR M Gallery, added Barnett.
While mergers and acquisition activity will remain
relatively cool locally, Thai investors will increasingly
look overseas to improve their returns.
"Asia continues to see cashed up hotel owners, and
property values have not been hard hit," said Barnett.
"There is some stress but not a lot of distress and, as in
1997, the great hotel sale is not going to happen given
that some Thai hotel owners are looking to developed
markets to diversify political risk, and look to lower
yields but more stability."
Markets such as Australia, Japan, America and Europe are
becoming increasingly attractive to Thai investors. "In
many cases it is now cheaper to purchase and the returns
greater for hotels in these countries compared to
Thailand," said Langdon.
Large international hotel operators are diversifying their
local offering to adapt to changing demand. Accor, which
operates 42 hotels in Thailand and has another 14 in
development, has focused on its ibis and all seasons
brands, said Paul Stevens, Director of Operations at Accor
Thailand.
He said: “In Thailand, Accor continues to develop the core
brand portfolio including Pullman, MGallery, Novotel,
Mercure and ibis hotels and, selectively, Sofitel hotels.
Additionally, the all seasons brand is finding traction in
Thailand as a non-standardized economy hotel brand.”
He added: “Over the past two years, Accor has developed
six ibis hotels throughout Thailand. This network, whilst
enjoying strong international business, is targeting the
domestic traveller from Thailand, and specifically, the
younger Thai travel market. This strategy has paid
dividends particularly during the slowing of international
arrivals.”
Marriott International has 12 hotels and resorts under
construction in Thailand, adding to its existing network
of 13 properties. Despite current problems, the company
remains upbeat on the local market´s future, particularly
Phuket, which it says has one of the region´s most
developed tourism infrastructures.
Local hotel are following the trend towards
diversification.
“We have a two-pronged focus with both traditional and
emerging destinations,” said Chris Bailey, Senior Vice
President for Sales and Marketing, Centara Hotels &
Resorts. “Our strategy is to expand in both owned and
managed resorts where we can add value to an owner´s
property and, in turn, their property adds value to our
brand offering. A major change and opportunity for us will
be the launch of our new three-star brand within Thailand,
which we feel has huge potential for our group.”
While Amari will open its next resort, a 223-room property
in Hua Hin, in late 2011 the firm is on the lookout for
new properties in Bangkok, Phuket and the Eastern
Seaboard. The brand plans to manage up to 50 properties by
2018 and will increasingly look overseas to do so.
“We are looking across the region, from the Arabian Gulf
to Australia. We will do this as an operator, not as a
real estate buyer and will focus on leading resort
locations and major cities to begin with,” said Henley.
Local brands do not expect a significant improvement in
the market´s performance until mid-2010 at the earliest,
and political risk will remain a key factor that could
stave off any recovery.
“We are at the mercy of any future demonstrations,” said
Sunny Bajaj, Managing Director of Amburaya Hotels and
Resorts which owns the W Koh Samui Retreat and Residences
and Sheraton Pattaya.
The company is also developing the 300-room Holiday Inn
Express Siam which will open in 2011. “It will be the only
three/three-and-a-half star property in the vicinity and
will be ideal for rate conscious travellers," he said.
“The move to these kind of hotels has the emerging trend
over the past few years.”
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