The strengthening of the Thai Baht and the ongoing US-China trade war have resulted in a decline in average rate growth and generally softer demand level in 2019 and furthermore, the extensive hotel supply growth in Bangkok has been the dominant topic for discussion in the market.

Supply will be growing continuously with approximately 15,000 hotel rooms in the pipeline with a five-year horizon.

While a multitude of factors will impact the market performance in 2020, including the recent Coronavirus outbreak (COVID-19), it is evident that the 4,000 new hotel rooms scheduled set to open this year will put Bangkok’s hotel market under pressure.

Thailand Economic Overview

Figure 1: Thailand Economic Indicators

Source: Economist Intelligence Unit, January 2020

The Thai economy grew at a moderate pace in 2019 despite public expenditures and fixed investment growth related to infrastructure projects. Momentum is weakened by domestic risk following the elections in March 2019 with high household indebtedness limiting private consumption and external uncertainty from the US-China trade war and monetary policies.

Furthermore, the appreciation of Thai Baht against the US Dollar on the back of a large account surplus has hurt exports and farm incomes amid the slowing domestic and global economies. In early 2020, the Bank of Thailand (BOT) cut its benchmark interest rate to a record low as the Coronavirus puts downward pressure on Thailand’s struggling economy. It is expected that a weaker economy will be observed during the first half of 2020.

Bangkok

Source: HVS Research

Bangkok can be divided into several main districts, including Sukhumvit, Silom/Sathorn, Riverside, Old Town, Rama IX-Makkasan, and the outer area. The Sukhumvit area, with its plethora of malls, office complexes, attractions and food and beverage venues, sets its boundary along the BTS Sukhumvit Line, which is well-linked between Siam and Ploenchit Road, through the middle Sukhumvit of Asoke and Thonglor.

The area along Sathorn and Silom Road is considered to be the traditional central business district of Bangkok with high-rise office towers on all corners. A large plot of land on the corner of Wireless Road and Rama IV Road has been earmarked for a large mixed-use development called ONE Bangkok. Dusit Thani Public Company Limited has also announced plans to develop Dusit Central Park, a mixed-use project comprising offices, retail facilities and a hotel together with the Central Pattana Public Company Limited.

The riverside posts a constantly changing scene with taxi boats transporting tourists from temples to another against a backdrop of the river views. ICONSIAM, the newest mixed-use shopping destination on the riverfront of Chao Phraya, opened in November 2018 and it is expected that the area will find a balanced mix of local crafts and high-end shopping malls to curate the new experience for tourists and locals alike.

A number of luxury hotels have already planned their presence in the area, including the relaunch of the Four Seasons Hotel in Bangkok. The Old Town of Bangkok houses several cultural tourist attractions such as the Grand Palace, the Emerald Buddha Temple and Wat Pho to name a few. Most of the hotels in this area are small unbranded hotels.

Rama IX-Makkasan area stands out as one of the upcoming locations in Bangkok. There have been several changes to the Rama IX area over the years with new real estate projects, including grade A offices, condominiums, and retail venues, making the area more liveable. Makkasan is connected to one of the Airport Rail Link stations, and the 400-rai site is earmarked for a masterplan development, which is anticipated to transform the surrounding area.

Bangkok's Infrastructure

Bangkok is currently served by two mass transit systems: the BTS sky train and a subway system known as the MRT. The BTS currently has 48 stations on two lines: Sukhumvit Line and Silom Line; the MRT has 45 stations on two lines: The Blue Line and the Purple Line.

In 2019, BTS Sukhumvit Line expanded to Kasetsart University station in the north and Kheha station in the South. The BTS Sukhumvit Line (Light Green Line) will expand further to Khu Kot station in the north with an inauguration expected later this year. The plan of the extension stations is expected to inaugurate this year.

2020 Outlook

Accessibility within the city will be further ameliorated as the development of the mass transit systems progress coupled with the expansion of the two international airports. These expansions will ensure the city maintains its status as a gateway city, not only for visitors to the city but also for visitors to the region.

In 2019, the persistent strength of Thai Baht resulted in slower growth in the tourism sector, which led to negative performance across every hotel positioning, especially the decline in the average rate; however, the overall occupancy levels held steady. The fluctuation of the Thai Baht is highly dependent on the progression of US-China trade negotiations, the overall health of the global economy, and the policy from the Bank of Thailand in the short to medium term.

The outlook for 2020 is gloomy due to the lingering challenges, as well as the expected lower demand levels in the visitor arrivals caused by the Coronavirus epidemic, which has thrown the tourism industry into madness since the beginning of the year. An extensive amount of new supply entering the market, especially in the Sukhumvit area, will also force hoteliers to find the right balance between demand and supply over the short-to-medium term to ensure the success of the local lodging industry.

Unfortunately, 2020 is shaping up to be a soft year for the Bangkok market. At this point, it is encouraging that hoteliers are so far sustaining average rates throughout the downturn. Rate integrity will be key for the market to emerge from these trying times and seize the opportunities from growth induced by the new infrastructure projects.

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About Pawinee Chaisiriroj
Pawinee ChaisirirojPawinee is a senior manager at HVS Bangkok, providing a range of consulting and advisory services for the hospitality industry in the Asia Pacific region. Prior to joining HVS, Pawinee gained experiences in hotel operations with the Ritz-Carlton, Mandarin Oriental and Four Seasons. Pawinee holds an Honours Bachelor of Arts Degree in Hospitality Management with Real Estate Finance and Revenue Management from Glion Institute of Higher Education in Switzerland. For further information, please contact: pchaisiriroj@hvs.com

About Ruj Masan
Ruj MasanRuj Masan is an Analyst with HVS Bangkok. He graduated from Chulalongkorn University with a Bachelor of International Business Management. Prior to join HVS, Ruj excelled as a market analyst in Ananda real-estate development company. For further information, please contact: rmasan@hvs.com

About Daniel J Voellm
Daniel J VoellmDaniel J Voellm, Managing Partner HVS Asia-Pacific, is based in Hong Kong and has provided advice in all major markets across 23 countries and territories in the region. Daniel Voellm started his career at HVS in the New York office; as Vice President at the global headquarters, he conducted a wide range of appraisals and market studies as well as underwriting due diligence services in 22 US states and in Canada. Daniel brings a strong understanding of the hospitality industry to HVS. His experience in hotel and food and beverage operations in Germany, Switzerland, England and the USA is complemented by an Honours Bachelor of Science degree from Ecole Hôtelière de Lausanne in Switzerland. Daniel works closely with key institutional and private owners of hotel properties, financiers, developers and investors, and has gained a strong understanding of their investment requirements and approaches to assessing the market value of investment properties. Daniel further advises on property and concept development and strategy. For more information please contact, dvoellm@hvs.com

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