Bullish time for Singapore's hotel sector

"What is happening in Singapore? Why are the hotels so bullish? What segments of the industry are buying up the hotel rooms?" These are the frequently asked questions that Ms Judy Lum, Managing Director of Tour East Singapore, faced when she was at the ITB Berlin recently at the Singapore booth.

A question of market forces

Mr Raimund Hosch, Chief Executive Officer of Messe Berlin, said that hotel pricing was down to market forces and strong inbound business to Singapore had seen rates increase.

Drawing a parallel between Berlin and Frankfurt as well as Singapore and Hong Kong, he said rates in Berlin were always typically lower than Frankfurt year-round except during trade show days such as during ITB when room rates rose to reflect the strong demand.

Likewise, he said rates in Singapore were still lower when compared with cities such as Hong Kong but during convention or trade show days, they were expected to rise to reflect market conditions.

In Berlin, exhibitors from Asia constantly lament the high room rates they have to pay for what are considered average quality rooms. Some pay up to 300 Euros for a hotel room that would be considered three-star in a city like Singapore but they do so because it's the price of doing business.

Some relief round the corner

Mr Aloysius Arlando, Assistant Chief Executive, Business Travel & MICE for the Singapore Tourism Board (STB), acknowledged that a buoyant BTMICE sector had put pressure on the destination's room inventory but additional rooms coming into the market over the next couple of years could provide some relief.

The STB has been working hard at helping to alleviate the tight supply. Together with the Urban Redevelopment Authority (URA) of Singapore, more sites have been identified for hotel development under the Government Land Sales (GLS) programme. In the next three to four years, some 12,000 rooms will be added to the room inventory, of which about 5,000 would be contributed by the GLS sites sold since August 2006.

In the first half of this year, 12 new GLS sites for hotel development had also been opened up which, if sold, could add another 5,855 rooms to the inventory.

"Still affordable by global standards"

A Merrill Lynch report, issued in June last year, predicted that the demand for hotel rooms will increase at an average of 4,050 rooms per year between 2007 and 2015 and it forecasted "room rates to triple to S$600 by 2015 and occupancy to remain above 90%. Correspondingly, we forecast RevPAR (Revenue Per Available Room) to reach S$540 per room by 2015, 270% above the RevPAR in 2006".

It observed that Singapore was still affordable by global standards. "As at end 2006, Singapore's four- and five-star hotel room rates were cheaper than Hong Kong's and Shanghai's by 54% and 17%, respectively. We believe that as market conditions improve, hotel operators will regain pricing power and room rates will begin to converge with those of regional peers."

Between now and then, however, DMCs (Destination Management Companies) in Singapore would have to work within the situation.

Said a leading DMC: "We explained to our partners that it's a question of supply and demand and that there is high demand for corporate and business travel and that makes it more difficult to compete especially on weekdays.

"We are encouraging them to avoid weekdays and "convention" days and fit their programme into weekends and public holidays and non-convention periods.

Opportunities in the MICE segment

Ms Lum, who said ITB was a productive event for her company, said business was good but called it a challenge especially for those in the leisure segment.

Tour operators thus have to look for opportunities, she said. "It is obvious that the bullish outlook in arrivals and hotel occupancies are a result of the MICE and corporate segment and this is where the opportunity lies in - events, conferences, meetings and even cruises as Singapore strives to be an Asian cruise hub.

"With the completion of the two integrated resorts, we will have ample venues and space for major conferences and events."

The DMC interviewed for this story also saw new opportunities in the new events and developments slated for Singapore. Events such as the 2008 FORMULA 1T SingTel Singapore Grand Prix, and the Youth Olympic Games in 2010 would help raise the profile of Singapore overall, he said.