Domestic weekend leisure to spearhead Asia Pacific hotel recovery: Colliers

/ EdgeProp Singapore
August 28, 2020 10:45 AM SGT
SINGAPORE (EDGEPROP) - The weekend leisure segment is expected to lead the recovery in the Asia Pacific hospitality market, says Colliers International in its latest Hotel Insights report.
Pent-up demand should also drive domestic tourism as international travel restrictions and quarantine measures remain largely in place around the world.
Some governments have gradually started to lift travel restrictions and reopen borders in an effort to resume travel, promote tourism, and revive economies. However, many are treading cautiously, considering the risks of new waves of Covid-19 infections spreading.
In 2Q2020, hotels across Asia took a hit as a result of containment measures. Overall room occupancy fell to 33.9%, and the average daily rate also dropped to US$60.32 ($82.62) during the period. Consequently, revenue per available room (RevPAR) declined by about 69.9% on a yearly basis, according to the Colliers report.
Singapore which depends heavily on international travel demand - EDGEPROP SINGAPORE
Markets like Singapore which depends heavily on international travel demand and air travel will likely see a slower rate of recovery. (Picture: Bloomberg)
Most hotel markets in the region also recorded y-o-y declines in terms of room occupancy that were in excess of 40%. These included Japan, Thailand, Hong Kong and Vietnam. In local currency terms, Thailand and Australia were the only markets that recorded y-o-y increases in the average daily rate in excess of 2% in 2Q2020.
“The global economic outlook is expected to remain subdued in the near term given the ongoing uncertainty and risks of new waves of Covid-19. Therefore, the outlook for the hospitality industry in the region is expected to be dimmed in the near term,” says Govinda Singh, Colliers International’s head of hotels & leisure for valuation & advisory services, Asia.
International travel, especially those that require air travel, will take a longer time to recover. But the Asia Pacific hospitality industry is expected to rebound when travel eventually returns given its legacy of resilience and agility, says Singh.

What to expect during the recovery

Some promising signs of recovery can be seen in the hospitality markets of China and South Korea. The two countries have been relatively successful in managing the effects of the pandemic so far.
But Colliers cautions that the recovery will vary across properties, and will be influenced by factors such as location, economic conditions, demand profile, chain scale, extent of the opening of the travel market, and effectiveness of containment measures.
Hoteliers will need to take a “cross-disciplinary approach so that hotels are well-positioned to build public trust and offer compelling product and service offerings, enabling hotels to thrive in the new operating environment with an evolving customer mix and preferences,” says Singh.
Govinda Singh Colliers International - EDGEPROP SINGAPORE
Singh of Colliers: Travel will be domestic and shorthaul focused given international travel restrictions, and travel budgets could also be tightened. (Picture: Colliers International)
Domestic tourism will likely spearhead the pick-up in tourism demand, followed by the corporate travel segment, and then the extended leisure segment. Meetings, incentives, conferences, and exhibitions (MICE) and group segments will likely be the last to recover given the high adoption of technology as an effective platform for MICE activities.
Destinations that can draw on a considerable domestic travel market and a better containment of Covid-19 will likely see faster recovery rate. These include China, Taiwan, South Korea, Japan, Thailand, Vietnam, Australia and New Zealand.
Conversely, tourism markets with a high dependency on international travel demand and air travel will likely see a slower rate of recovery. Countries include Singapore, Hong Kong, Cambodia, Myanmar, Malaysia, the Philippines and Indonesia.

Evolving customer preferences

The post-Covid world will also see consumers prioritise health, safety, and hygiene when it comes to travel planning and decision-making, says Singh.
“Personal space will also be more important; instead of large tour groups, independent travel will take precedence and people will likely prefer bespoke holidays and seek out travel experiences with a purpose, for example health, wellness, and eco-travel,” he says.
Travel could also be more domestic and short-haul focused given the restrictions on international travel. Further catalysing this will be the tightening of travel budgets as a result of the effects of Covid-19 on the economy and employment.
Singh also points out that consumer confidence will be key to an economic recovery and revival in travel. This means hoteliers must have clear communication with guests regarding health and safety. Staff, management and owners should also be aligned with the new standards.
The challenging economic climate also means that hoteliers need to streamline their operations and suppliers in order to better prepare for the reopening, as well as prudent financial and yield management.

Tourism comeback in China

The effects of the Covid-19 pandemic hit China’s tourism sector relatively hard, and coupled with a disinclination to travel, the hotel industry saw a low hotel room occupancy of 7% in February.
But the resumption of domestic travel in China is well underway and the gradual lifting of restrictions and government stimulus plans, alongside promotional initiatives, have encouraged the return of domestic tourism in the country. As a result, the hotel industry in China has seen a monthly uptick in occupancy levels after bottoming out in February.
Tourism receipts generated from domestic tourism during the five-day Labour Day holiday in May amounted to RMB47.6 million ($9.43 million), with 115 million domestic tourists travelling the country. In comparison, the three-day Qingming Festival in April raked in RMB8.3 million and saw 43.3 million local tourists.
On May 1, China and South Korea were the first countries to open a fast channel for business travel to facilitate the resumption of bilateral business activities. This was followed by a Singapore-China fast lane for essential travel that was established on June 8.
“While the lifting of international borders will help (to some extent) in promoting tourist arrivals to China, domestic tourism remains, as before, the dominant driver for the recovery of China’s tourism performance, which should continue to gain momentum moving forward, alongside the various major holiday periods, including the summer holiday season and National Day holiday,” says Singh, before adding that the hotel industry in China should continue to see a recovery in RevPAR performance, albeit cautiously.

Capital markets insights

Adding to the retreat in hospitality investment sales in 1Q2020, investors continued to pause transactional activity in 2Q2020, resulting in a further drop during the quarter to about US$1 billion. This is a fall of 56.8% q-o-q, and a decline of 71.7% y-o-y.
The most liquid markets in 2Q2020 were Japan and South Korea, while markets in Hong Kong, China, and Taiwan saw little activity during the quarter. The bulk of transactional activity came from domestic investors. Notable transactions include the sale of Queens Hotel in Hong Kong and GLAD Gangnam COEX Centre (Hotel) in South Korea.
“While noting the comparatively lower investment sales during 2Q2020, investor interest has remained fairly firm against the backdrop of economic volatility and uncertainty. In the coming months, we expect investment activity to gain pace as investors move to take advantage of any opportunities that will emerge although cautious sentiment and stricter underwriting remain key given the evolving situation,” says Singh.
This is also the right time for investors and those looking to create foothold in the region’s key city and resort markets. “With access to mainstream financing likely to be limited in the near term, cashed-up investors who can transact quickly will be in prime position,” adds Singh.

Looking ahead

The future of travel in the Asia Pacific region will likely be dominated in the short-term by trips to nearby destinations, non-flight vacations, and self-guided holidays that will make a comeback first. The profile of most travellers during this phase will likely be young and single travellers, while higher-income tourists are expected to account for a larger proportion of tourists.
“Aside from ensuring high standards of safety and hygiene, we would encourage hoteliers to maintain agility while proactively reviewing, planning and implementing its marketing and revenue management strategies, alongside the curation of its product and service offerings, to ensure relevance and differentiation to capitalise on these trends in the recovery,” says Singh.
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