Singapore has led the way in Asia in terms of opening up during the later stages of the covid19 pandemic.
Starting from April 2022, border restrictions were first removed for fully vaccinated travelers and in late August for non-fully vaccinated travelers.
Thus, Singapore is open for visitors, business and tourism. Certainly, the upcoming Formula 1, Bloomberg New Economy Forum, and IDEM events bring tens of thousands of visitors to the city, which cannot be readily accommodated and properly welcomed with borders restrictions.
Obviously, open borders bode well for #hospitality – or so one may think. Leading up to the pandemic, Singapore registered a surge in #hotel #supply, effectively doubling between 2008 and 2019. Notably, many new hotels were geared towards the mid-market though growth remained somewhat balanced.
This astounding growth in supply was outpaced by demand – which grew by 115%. The city-state worked hard to introduce many new attractions, such as Universal Studios, Marina Bay Sands, Night Safari, and Gardens by the Bay to name but a few. This push was paralleled by a buoyant #MICE market, capitalizing on Singapore’s key advantages and supported by an assiduous tourism board. The crown jewel among events is certainly Formula 1, which has become a fixture on the global racing calendar, further boosting the destination’s awareness.
Notably, marketwide #averagerate contracted slightly at a compound annual rate of 0.8% between 2008 and 2019 – notably 2018 and 2019 posted modest gains on the back of record occupancy rates. This is partially attributable to a structural shift in supply away from high-end hotels, yet impact everyone trying to drive average rate.
The pandemic posed challenges to #singapore, just like anywhere else in the world. The response was quick and resolute. Many hotels were contracted to Stay-home notice Dedicated Facilities (SDF) for quarantine purposes. The exact numbers are difficult to come by, though there were more than 70 hotels used for such purposes. This helped sustain some form of demand for hotels, albeit at very low rates.
Other properties resorted to staycation and long-stay demand from ‘exiled’ Hong Kongers and Mainland Chinese, among others extending the average length of stay (ALOS). Over time, the local authorities terminated SDF contracts, releasing more supply back into the market.
Always erring on the side of discretion, independently establishing what hotels ended their contracts when (or god forbid their rates) is a fool’s errand. Notably, many properties undergo deep cleaning and minor repairs after their SDF contracts end, which can last as long as three months. Some properties were also #rebranded, buying properties additional time. Regardless, 2022 saw a gradual increase in ‘free float inventory’ vying for #demand.
Meanwhile, #visitorarrivals surged from April 2022 onwards – at first approximately 300,000 to more than 700,000 in July and August – setting the city on track for up to six million visitors by year according to the Singapore Tourism Board (STB).
A few noteworthy developments here: the resurgence is mostly driven by #FIT demand – including many Indonesians visiting Orchard Road with zest from pent-up/revenge travel staying a few days extra to make up for lost time. Other nationalities pitched in their fair share with India and ASEAN countries being prominent in Asia alongside long-haul markets of the US, UK and Europe. Australians registered the highest growth compared to 2021 at an astounding 70 times.
Long-haul markets also contributed corporate demand. In a behavioral shift compared to pre-pandemic, partially attributable to higher airfares, corporates tend to stay longer in Singapore, and using it as a regional to conduct business across Southeast Asia.
Another boost to length of stays. Lastly, tour group demand has as yet not returned to the market. Elevated airfares and capacity constraints continue to price them out of the market while the STB aims to shift to higher-rated demand, which doesn’t bode well for the segment.
Sorry, you may wonder – what capacity constraints? Supply is being released back into the market – yes. However, hotel rooms are nothing if they cannot be cleaned regularly and guests checked in and out smoothly. After years of operating at half-pace (read lower occupancy), hotels suddenly need to learn to sprint.
Unfortunately, as in many other parts of the world, hotels let many of their staff going during the pandemic to save costs potentially averting their own demise. As we learn now, hiring new staff is not so easy – many who left the industry realize there is less grueling work out there which pays the bills just as well or even better. It is not uncommon to see Executive Committee members help clearing tables or working at the front desk.
Stringent visa restrictions to protect the local work force prevent hotels from hiring talent overseas and said grueling work conditions are not every local’s cup of tea. The situation is so severe that many hotels limit their #occupancy levels to between 60% and 80% to ensure rooms get serviced and little staff they have maintain their health. Though what is really at stake is service quality and guest satisfaction - once come unhinged and they can easily damage a destination’s reputation for being too pricey with poor service.
Curiously, it is not common in Singapore to pay out Service Charge which goes to the owners’ pocket/bank (and the management fee of the operator). Maybe Singapore could take a page out of #Thailand or the #Maldives’ book where service charges do get paid and can make a considerable share of monthly earnings?
Back to the market – hotels that operate at low occupancy levels now focus on yielding effectively. On the back of artificially restricted supply from SDF contracts and occupancy caps, coupled with longer lengths of stay and an absence of lower-rated demand the market is recovering very well. According to the STB, #RevPAR in June of 2022 exceeded that of the same month in 2019 by S$6.39 and fell short by a mere 34 cents in July.
The question remains how sustainable this #recovery is going into 2023. As mentioned, average rates had stagnated prior to the pandemic and operators are keen for some healthy rate gains in their upcoming corporate contracts. Yet corporate may not have the appetite to absorb higher rates and shift down the categories of hotels they make available – partially offset at the property level by #dynamicpricing policies.
Many uncertainties remain as we approach 2023. The mainland Chinese market will not come to the rescue anytime soon. Potentially their revenge spending will help to boost demand for another half year while other markets retrench back to normal. A recovery to 2019 performance levels would be desirable, yet more supply is in the pipeline in excess of 5,000 rooms. How those rooms will be filled in the short term, with the targeted new crop of higher-rated demand, remains to be seen.
As J.D. Power states in their 2022 North America Hotel Guest Satisfaction Index (NAGSI) Study (published in July 2022): ‘Hotel operators must carefully balance a focus on recovery with the heightened guest expectations that come with higher room rates.’ This conclusion may well apply to hotel markets near and far.
Dan Voellm, MRICS is the CEO & Founder of AP Hospitality Advisors, responsible for all aspects of the firm. Based in Hong Kong he covers the entire APAC region.
With more than 15 years of consulting experience, Dan Voellm has provided advice in 24 territories across Asia Pacific. Prior to rebranding the firm to AP Hospitality Advisors in 2021, Dan Voellm was Managing Partner of HVS Asia Pacific responsible for five offices in Greater China and Thailand. He started his career to become Vice President at HVS’ global headquarters in New York (2005-2008) conducting a wide range of appraisals, market studies and underwriting due diligence services in 22 states as well as Canada. Dan Voellm brings a strong understanding of the hospitality industry to AP. His experience in hotel and food and beverage operations in Germany, Switzerland, England and the United States is complemented by an Honours Bachelor of Science Degree from Ecole hôtelière de Lausanne in Switzerland.
Dan works closely with key institutional and private owners of hotel properties, financiers, developers and investors, and has gained a strong understanding of their investment requirement and approaches to assessing market values of investment properties. Dan further advises on property and concept development and strategy as well as expert witness testimony.
Dan is vice-chair of the Urban Land Institute’s (ULI) Hospitality Development Council in Asia Pacific and became a Professional Member of the Royal Institute of Chartered Surveyors in 2016.