What a difference a year makes, says JLL Hotels Asia's boss - from sunshine just 12 months ago, dark clouds have appeared over the hotel horizon.

A year ago Scott Hetherington (pictured right), managing director of Jones Lang LaSalle Hotels Asia, said he was on a beach in Phuket contemplating the sunshine. The company had just completed its biggest transaction in Asia – the sale of the ANA Hotels portfolio in Japan; there was strong bidding and the market signs were positive.

Today it's all changed, he said and he predicts the greatest challenge for the hotel industry, in South-east Asia at least, will come the first half of next year.

While he says there were mixed signs in the market currently – "I wanted to fly from London to Tokyo last week and I couldn't get a seat in any class" – there are signs of a slowdown.

"If you're an investment banker, you're not travelling. Corporate travel is slowing down. Inflation is rising, interest rates will go up, there will be a gradual slowdown and the first half of next year will be difficult times," he said.

However it's not all gloom and doom. In its Asia Digest 2008, JLL Hotels identified Malaysia and Vietnam as the key growth markets in South-east Asia, with Singapore, Thailand and Malaysia continuing to be strong markets for predominantly intra-regional travel. The Indian sub-continent is also expected to continue its growth trend.

On the investment front, it predicts that hotel transaction activity for Asia Pacific in 2008 would soften from 2007 (US$13.9 billion) back down to levels seen in 2005-2006.

Key markets for transaction activity will be Singapore, Thailand and Japan, with some transactions in China and India. Foreign direct investment (FDI) into the region is forecast to increase from US$230 billion in 2007 to almost US$250 billion over the next few years, mostly into hotels as well as transport and tourism infrastructure.

Leading growth markets like China (PRC), Hong Kong, Singapore and India are forecast to account for almost 80% of the funds invested in 2008.

Turning to hotel performance, JLL Hotels said that Singapore's hotel occupancy rates would remain healthy over the long term. Year–to-date (May 2008) average daily rates (ADR) for the five-star segment has increased by 20%, and for the four-star, 26%, compared with full year 2007.

In 2007 Singapore's revenue per available room (RevPAR) for four- and five-star hotels was the highest in 10 years, with 22.4% RevPAR growth in the four-star category and 18.8% RevPAR growth in the five-star category.

Despite complaints over Singapore's elevated room rates, Mike Batchelor, managing director, investment sales Asia, said that in the Five-Star: 2007 ADR category, Singapore was not even in the top 10 cities. With an ADR of $205 it was at 11th position after Seoul's S$204.

Bangalore was the most expensive city at $388, followed by Hong Kong ($335) and Mumbai ($303).
Singapore, however, came second in the occupancy charts at 81.4% just under Pune's 82%.

Indian cities featured strongly in the top 10 charts whether measured by occupancy, RevPar growth or ADR, according to JLL Hotels figures.

However stifled stock growth over the last five years is leading to a demand supply crunch. And while India's RevPAR is growing rapidly, JLL Hotels cautions that this may slow in coming years due to supply additions in major Indian cities.

During FY2006-2007, performance in Delhi/NCR and Mumbai grew 40% and Bangalore grew 20%, although JLL Hotels warns that such growth, especially in Delhi and Mumbai, is not sustainable for the long term.

India needs to add 150,000 new rooms in the next four years, based on a government target for 2010. The total supply for major Indian cities stands at approximately 30,000 as of March 2008.

The introduction of the ‘bed and breakfast' concept would help to meet demand quickly in places like Delhi, which requires 30,000 new rooms by 2010 to meet the Commonwealth Games' related demand. In Mumbai, more than 1,500 new rooms are planned in 2008, but not all are expected to come on-line.

Mumbai's ADR has grown by 40% and RevPAR growth will be driven by this increase in ADRs. In Bangalore, 5,700 new rooms are planned for 2008-2009, which is expected to alleviate the current shortage in supply. With occupancy expected to remain at 65-70% in the next five years, RevPAR growth is expected to be driven by ADR growth in 2008-2009.

"Underlying sentiment remains positive, however, in the short term, a more tempered view on growth will be taken in light of the global slowdown," said Sudeep Jain, executive vice president, India.

Meanwhile, its research shows that room stock in Asia is set to grow 25.8% with 140,000 new rooms around the region.

Yeoh Siew Hoon, one of Asia's most respected travel editors and commentators, writes a regular column on news, trends and issues in the hospitality industry for 4Hoteliers.com.

Siew Hoon, who has covered the tourism industry in Asia/Pacific for the past 20 years, runs SHY Ventures Pte Ltd. Her other writings can be found at www.thetransitcafe.com

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