c o l l i e r s i n t e r n at i o n a l
| T H AILAN D
The Knowledge Report B a n g ko k Lu x ury & U pp e r S c a l e H ot e l M a rk e T | 1 s t Q U A RT E R | 2 0 1 0
Executive Summary The Bangkok hotel market had a good Q1 2010 on the back of a return of robust tourism figures highlighting the enduring appeal of Thailand and its capital city. Market Indicators 2009 - Q1 2010
SUPPLY Demand RATES occupancy
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The future of the market remains uncertain due to the significant new supply of hotel rooms coming online in 2010 and the following year. This year will herald the greatest addition of new supply of Luxury and Upper scale hotels to Bangkok in its history. Expected supply will continue to be significant through 2011-2012. This is likely to squeeze occupancy levels which in turn will lead to pricing pressures. Recent developments regarding “red shirt” protests have also cast a cloud on the horizon. While as of March 31 they have remained almost entirely peaceful, indications are that they have already started to adversely affect the hotel market. Thailand’s political instability and outbreaks of protest risk being endemic in the long term and threaten the prospects for the hotel market in terms of future planning and Bangkok’s development and expansion as a MICE destination. The recent growth in tourists coming from India and Middle East has allowed for an underpinning of off peak season demand and Indian tourists are more immune from the upheavels associated with Thailand’s political situation. This can positively affect the Bangkok market but with the resorts, especially Pattaya, being the main beneficiaries.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Hotel classification While the Thailand Hotels Association (THA) categorizes hotels with a star rating, many hotels do not abide by star rating. Therefore in this study, Colliers International Thailand have
produced a classification based on the quality of the hotel as seen through the eyes of the hotel management companies and on the British Hospitality Association classification.
Basic overview of hotel classification Budget - hotels with limited to no facilities. Rooms are simple with basic furnishings with sizes ranging from 12 to 18 sq m. Economy - comfortable, well equipped accommodation, with an en-suite bath/shower room. Reception and other staff aim for professional presentation that at and offer a wide range of straightforward services, including food and drink. Mid scale - hotels are usually of a size to support higher staffing levels, and a significantly greater quality and range of facilities. Reception and the other public rooms will be more spacious with a number of restaurants. All bedrooms will have fully en suite bathrooms and offer a good standard of comfort and equipment, such as a hair dryer, telephone and toiletries. Upper scale - a degree of luxury as well as quality in the furnishings, decor and equipment, in every area of the hotel. Bedrooms will also usually offer more space and be well designed with co-ordinated furnishings and decor. The en-suite bathrooms will have both bath and fixed shower. It will contain a high enough staff to provide services like concierge and porter service, 24-hour room service, laundry and dry-cleaning. The restaurants will provide high quality cuisine.
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Luxury - spacious and luxurious accommodation throughout the hotel, matching the highest international standards. Interior design should impress with its quality and attention to detail, comfort and sophistication. Furnishings should be immaculate. Services should be formal, well supervised and flawless in attention to guests’ needs, without being intrusive. The restaurant will demonstrate a high level of technical aptitude, creating dishes to the highest international standards. Staff will be knowledgeable, helpful, and experienced in all aspects of customer care, combining efficiency with courtesy. For the purposes of this report the use of the word “hotel” shall refer to the Upper Scale and Luxury hotel ratings that are the subject of this report. Hotels below these will be mentioned by their particular category.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Zoning
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
ZONING
The centre of Bangkok contains the lion’s share of Luxury and Upper scale hotels in the city due to it being the heart for both business and tourism. Sukhumvit road up to Phrom Phong has its own distinct identity due to the location being the main night life entertainment area in the city for foreigners. As these entertainment facilities extend some way into many of the sois, a large number of hotels are also located away from the main Sukhumvit road. Even within this road many sois have there own micro-identities such as soi 4, 7, 8, 11 and 22. The Northern CBD has its borders defined by Phetchaburi to the north to Chalermahanakorn Expressway down to Rama VI but also including the area up to Ratchadapisek south of Sukhumvit. This area contains most of the large upper scale shopping malls as well as offices. The emphasis is on a mix of business travelers and family tourists.
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The Southern CBD includes the area bounded by Si Phraya, the south side of Rama IV, Sathorn and the eastern side of Charoenkrung. It is primarily a location for offices with limited shopping facilities and reasonable entertainment areas that partially rival Sukhumvit. The Riverside is the biggest player in the Upper scale and Luxury segment due to its attractive location. However supply is limited in this market and no Mid-scale hotels can be found in the area. The Thonburi side of the area is considered as the same market as the hotel shuttle boats that regularly ply between the two banks are an added attraction for most tourists. The Western area contains the old city as well as the backpacker area located in Bamglampoo. Whilst this area is awash with hotel rooms, there are no Upper or Luxury scale hotels located here and as such is not considered in this report.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Historical Supply
Historical supply from 1995
Source : Colliers International Thailand Research
Supply of Luxury and Upper scale hotels in Bangkok continued to grow after the Asian Financial Crisis in 1997 due to the ever increasing number of tourists visiting the city possibly spurred on by the weakening of the Baht. About an average of 400 rooms per year were added from 1998 to 2006. However after this sup-
ply grew more quickly with over 1,000 rooms added each year after that and the trend is set to continue for this year and next. As of Q1 2010 there was a total supply of approximately 14,200 rooms.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Luxury & Upper scale hotel in Bangkok by year & location, 1995 – Q1 2010
Source : Colliers International Thailand Research
Supply in Northern CBD has shown the biggest movement in the past 15 years from approximately 1,100 rooms in 1995 to more than 3,400 rooms in Q1 2010, a near three fold increase. While the Sukhumvit area is the darling of the Mid scale and Economy scale range, these are not covered in this report as previously
mentioned . In terms of the Luxury/Upper end the area still lags behind the CBD and Riverside areas but has shown rapid growth in the latter part of the last decade due to Sukhumvit’s mild gentrification and continuing popularity.
Breakdown of Luxury & Upper scale hotel rooms in Bangkok by location in the year 2000
Source : Colliers International Thailand Research
In the year 2000, the total supply was located in four areas and 35% was concentrated in the Riverside area followed by Southern CBD area with 21%. 6
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Supply of rooms by zone – Q1 2010
Source : Colliers International Thailand Research
By the year 2010, most areas have expanded their market share at the expense of the Riverside. The lack of available land in this small area will constantly hamper growth and in some ways existing hotels on the Riverside can capitalize on their exclusivity. The Eastern area has emerged on the radar screen due to the
operation of international flights from Suvarnabhumi Airport. This is also the reason why there was a reduction in the Northern area’s market share as international airport operations have shifted from Don Muang Airport.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Supply by Zone
Source : Colliers International Thailand Research
While in every area Upper scale hotels have a greater supply, their proportion in relation to Luxury hotels reflects the character of each area. The Northern CBD contains the high end shopping malls comparable to what Oxford Street is to London or Orchard Road is to Singapore. Therefore many Luxury hotels are located there. The Riverside is also known as a prestigious area due to its scenic location and again Luxury hotels make up a large slice of the hotel market there. The Southern CBD is split between the eastern part of Sathorn road and Rama IV
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containing more Luxury hotels whilst the older CBD area of Silom contains a much greater share of Upper scale hotels. The particular nature of Sukhumvit means far more Upper scale hotels in comparison. The distance of the Eastern area and Northern area from the centre explain why no Luxury hotels are located in this area.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Future Supply
Future supply of Luxury & Upper scale hotel by year, 2010 - 2013
Source : Colliers International Thailand Research
More than 1,650 rooms are scheduled to be completed in 2010 which represents an addition of 12% to total supply in 2009 . Around 2,500 will also be supplied in the Mid scale category. Two hotels in the Luxury end of the market are due to open their doors in 2010. The Siam Kempinski (306 rooms) located at the back of Siam Paragon, is scheduled to begin operations in Q2 2010. The 198 room St. Regis Bangkok will open its doors from October 2010 and is located on Rajadamri Road.
Sukhumvit area will dominate new Upper scale supply in 2010 with the opening of Sofitel Bangkok Sukhumvit, Four Points by Sheraton and Park Plaza Bangkok Asoke altogether accounting for approximately 760 rooms.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Future supply of hotel rooms by grade and year, 2010 - 2013
Source : Colliers International Thailand Research
Thailand’s political problems have directly impacted the tourism market in 2009 – 2010, especially Bangkok. In the long term however, many investors still remain optimistic regarding future potential and are still interested in developing hotels in Bangkok
with a total of 9,400 rooms scheduled from 48 projects by 2013, 50% of them are in the Mid scale category followed by Upper scale and Luxury hotel, with 27% and 23% respectively.
Future supply of hotel rooms by grade and year, 2010 - 2013
Source : Colliers International Thailand Research
Sukhumvit is the popular area in the future, representing 36% of all future supply for Bangkok. Many developers have selected to develop hotels in this area due to the convenience to the BTS provided along Sukhumvit road which is suitable for tourists and business people alike as well as the lively nature of the Sukhumvit road and its many interesting sois. The eclectic nature of 10
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Sukhumvit has meant that it has attracted a significant number of boutique style hotels that challenge the existing perceptions of hotels in the higher categories. Many in the area are independent, non branded hotels. This represents an interesting investment niche for the foreseeable future. However the Northern CBD continues to be the main focus for Luxury scale projects.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Demand - Occupancy Rate Average occupancy rate of Luxury & Upper scale hotel in Bangkok by grade, Q1 2010
Source : Colliers International Thailand Research
Average occupancy rates for Upper scale hotels is significantly higher than Luxury hotel for Q1 2010. Increasing price sensitivity from visitors has made it difficult for Luxury hotels to com-
pete as people opt for lower rates in exchange for a less luxurious experience but still world class facilities.
Occupancy Occupancy rate of Luxury & Upper scale hotels, 2005 - Q1 2010
Source : Colliers International Thailand Research
Occupancy rates declined steadily for three years from 2005. This was the result of growing instability including the 2006 coup as well as a number of health scourges. The nadir for occupancy was at the end of 2008 with the closure of the airport
as a result of the “yellow shirts� blockade which left large numbers of international travelers stranded. Since then occupancy rates have improved.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Demand drivers focus Tourism
International passengers to Suvarnabhumi Airport minus those in transit
Colliers International Thailand Research Source : Airports Authority of Thailand
At present the best tourism arrival figures come from the Airports Authority of Thailand regarding passenger numbers. However it is difficult to ascertain how many remain in Bangkok or simply travel directly to another location such as Pattaya, Hua Hin, Phuket or Samui. Therefore the figures can only be used as a rough guide to overall trends. It is hoped that in the future a more detailed breakdown can be provided as was the case in the past. The numbers show that demand is back following the travails at the end of 2008 and later in 2009. The recent figures for the peak season (Q4/Q1) reveal that tourism numbers are approaching the levels they were in the 07/08 peak season. For Thailand the tourism industry is one of the proverbial phoenix from the ashes. 12
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At the end of Q1 protests were taking place in Bangkok that were on the whole peaceful. It was impossible for anybody to predict how these protests would end. Thailand has often faced periods of difficulty in past both internally and externally. It is interesting to note that according to the Tourism Authority of Thailand about 60% of arrivals to the country are repeat visitors. This compares to just 17% for Malaysia. This is of vital importance as it creates an emotional connection with Thailand and as such many will return when the situation is safe. The student backpacker who arrived 15 years ago in Banglampoo may be visiting with his or her family today, staying in a Luxury hotel and in the future may wish to retire and buy a property here. For many foreigners Thailand represents a part of their lives rather than just the next holiday destination.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
European Visitors Number of tourist arrivals to Thailand from selected markets in Europe
Colliers International Thailand Research Source : Office for Tourism Development
The Scandinavian market has risen dramatically in the second half of the last decade but has fallen even faster due to the current events in Thailand. The Scandinavians are a significant
provider of visitors to Hua Hin so their impact on the Bangkok market is not so important. Steady falls occurred in the UK and German markets.
Off peak demand generators One of the key challenges facing hotels in most of the world is how to fill up rooms during the off peak season. Often MICE events are encouraged during such fallow periods. The other focus is on markets that buck the trend when it comes to seasonal tourism. Although the resort markets benefit more from
this, Bangkok can also take advantage as many visitors are often attracted to the big city atmosphere. Two of the most rapidly growing markets are in South Asia (India, Pakistan etc) and the Middle East.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Number of tourist arrivals to Thailand from the Asia Pacific region
Colliers International Thailand Research Source : Office for Tourism Development
The latter half of the last decade witnessed a significant growth in travelers to Thailand from South Asia and the Middle East. This pattern continued last year despite serious drops in other markets in the Asia Pacific, notably Japan. This would imply
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that South Asians in general are more resilient to disturbances that affect other markets and have also posted robust economic growth figures in the midst of a global recession.This is in contrast to the more sensitive East Asian market.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Number of tourists visiting Thailand from selected markets
Colliers International Thailand Research Source : Office for Tourism Development
The figure shows the seasonal variations between the Middle East, India and Germany, the latter chosen because of its overall comparable tourism numbers and that it reflects the general pattern of demand from western countries. The period of lowest tourism activity occurs in the months of May, June and July. This is a period where the European summer holds more attractions with usually limited holiday periods prior to the August and September school holidays. However for the Indian and Middle Eastern markets this is the period when the population seeks better climates away from the searing pre-monsoon heat in India and the scorching summer temperatures in most of the Middle East. Interestingly, while the heavy rains in Bangkok deter many would be travelers, they represent a lesser drawback for those living in arid desert lands.
Although these figures represent Thailand as a whole, the two markets are not known for visiting resort destinations except Pattaya, close by to Bangkok. It can therefore be assumed that Bangkok benefits from these markets more than other parts of Thailand for the low season. One downside is that the spending power of the South Asian market is relatively low and demand for Luxury / Upper scale hotels would be limited with Mid and Economy scale hotels benefitting the most.
Low cost carriers The emergence of low cost carriers (LCCs) such as Air Asia and Tiger Airways in the region has been a growing trend that is set to continue. While the initial flights were predominantly short hops, the carriers have looked further afield for longer range hauls to countries such as Australia and India. To some degree the existence of cheaper alternatives has led to added demand. However the effect of the low cost carriers should not be over
stated. Less than 10% of international passengers arriving to Suvarnabhumi Airport disembark from the LCCs. The number of passengers arriving from LCCs has risen from nearly 80,000 in 2007 to over 132,000 in 2009. The ability of the LCCs to penetrate growing markets such as India and the Middle East are key to them positively affecting tourism numbers.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Rates Average daily rate by grade 2005 - Q1 2010
Source : Colliers International Thailand Research
Hotel rates have fallen since their peak in 2008 reflecting the global economic downturn as well as the aftermath of the airport closure and violent incidents during the Songkran festival in 2009. Hotels were compelled to cut rates due to stiff competition for customers. This trend was exacerbated by the growing
use of the internet to find rate information for hotels and visitors are becoming more price sensitive as a result. The Upper scale hotels showed a greater tendency to drop rates in the form of special offers.
Average daily rate by grade & location, Q1 2010
Source : Colliers International Thailand Research
Luxury hotels in the Northern CBD area command the highest rates due to its prime location for tourists and business people. The special attractions of the Riverside area account for the higher rates compared to that of Sukhumvit. The price differentials are smaller between Luxury and Upper scale hotels in 16
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Sukhumvit which is likely due to the importance of the location being a more significant factor in choice than the hotel itself. The Northern CBD has a far greater difference as there are number of prestigious hotels with high room rates and a number of more functional Upper scale hotels offering competitive rates.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
RevPAR RevPAR by grade
Source : Colliers International Thailand Research
There has been a slight uptick in RevPAR driven by increased occupancy outpacing drops in rates. It can also be implied that the greater the occupancy the more non-room revenue streams are being generated such as from food & beverages. Although RevPAR continues to be main performance metric for hotels, the use of others such as GOPPAR (Gross Operating Profit Per
Available Room) should also be taken into account, especially from the Luxury/Upper scale sector which provide a greater array of facilities. Hotels are facing increasing challenges in squeezing as much revenue as they can from its property.
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The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Forecast The hotel market is set for strong headwinds in the next few years due to the significant amount of supply coming on stream over the next few years. This assumes that the political situation in Thailand remains stable, which in light of the ongoing protests in the city centre cannot be taken for granted.
In the event of protracted or regular upheavels in the country and Bangkok in particular, Colliers International Thailand foresees the possibility of developers reconsidering current plans to reflect changing conditions and long term optimism being replaced by caution.
Investors focus The issue of abundant supply of the Luxury hotel segment in the next few years should cause pause for thought on investors wishing to enter this market. Movement into the Upper scale range still offers promise but the acquisition of economical land in a reasonable location would weigh heavily in any decision. Future investors should also judge between focusing on specialized products such as smaller scale boutique style concepts which would allow the hotel to focus on a niche market or develop properties large enough to benefit from economies of scale such as in targeting the MICE market , use of banqueting halls or even aiming for the serviced apartment market.
Operators focus Even with high occupancy, hotels will have to continue with the trend of falling prices as consumers become more price savvy due to the copious amount of information on the internet and the range of hotels rooms at all price levels being available. Food and beverages continue to be a significant revenue stream and hotels will have to be more proactive and inventive in maintaining this from guests and non-guests through the promotion of MICE and other revenue generating activities such as anniversaries. The need to attract niche markets is becoming increasingly prevalent. The growing markets in the Middle East and India can be further broken down by country or region. The South East Asian market spurred by low cost carriers and short term decision making can be targeted with long weekend getaway packages. The nurturing of niche markets and the development of innovative revenue generators will focus the minds of operators in these challenging times.
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Larger scale hotels should consider reducing the number of restaurants and focus on other peripheral revenue generating outlets such as specialist spas and health clubs. Thailand may follow the trend in the west by subcontracting out F&B and other outlets to specialist operators.
The Knowledge Report | 1st Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
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