Q1 2011 | HOTEL
thailand
Bangkok Luxury & Upper Scale Hotel Market REPORT
Bangkok Luxury & Upper Scale Hotel Market Executive Summary Hotels showed signs of recovery after a very problematic 2010 with occupancy rates higher in Q1 2011 than the previous quarter. Rates in Q1 2011 are comparable to those registered in Q1 2010.
market indicators Q4 2010/Q1 2011 new Supply RATES Occupancy RevPAR
Note 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 with ratings below these will be mentioned by their particular category. Please refer to the appendix for hotel category definitions.
The trend is still for hotels, especially in Luxury segment, to drive rates down in order to compete and this looks set to continue. A “risk discount” seems to be being applied in the case of hotels in areas deemed prone to further political strife. Middle Eastern, Indian and Chinese visitors continue to be a growing presence in the Bangkok tourism industry especially during the low season. However traditional tourist markets, the mainstay of the Upper/Luxury segment (ULS), have begun to return to the city. The effect of the reduction in long term bookings after events last April and May appears to be abating. Future supply in 2011 and 2012 will further test hotels’ ability to fill their rooms. Only continued strong growth in tourism can mitigate this situation. There will be no respite for the industry for some time to come.
Additional Supply by Quarter in Upper/Luxury segments
Source: Colliers International Thailand Research
In Q1 2011 a total of around 75 rooms were added to supply in Bangkok in the ULS with the opening of just one hotel, The Sivatel Bangkok, in the Northern CBD area. The total number of rooms at the end of Q1 2011 was more than 15,100 in the ULS.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Supply by Location, as of Q1 2011
Source : Colliers International Thailand Research
While in every area Upper scale hotel rooms are in greater supply, their proportion in relation to Luxury hotels reflects the nature of each area. The Northern CBD contains the high-end shopping malls, comparable to what “The Magnificent Mile� is to Chicago, or Nevski Prospekt to St Petersburg. As such, many Luxury scale 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. The Southern CBD is split between the eastern part of Sathorn road and Rama IV, containing more Luxury hotels, whilst the older CBD area of Silom contains a much greater share of Upper scale hotels.
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The Sukhumvit area contains a greater proportion of Upper Scale rooms compared to Luxury ones. The more down-to-earth nature of this area means that fewer Luxury hotels are located here. The distance of the Eastern area and Northern area from the centre explains why no Luxury hotels are located in these areas and only a limited number of Upper scale rooms. Also, these areas have a limited concentration of tourist facilities.
Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Comparable Supply between Luxury & Upper Scale Hotel and Mid Scale Hotel
Source: Colliers International Thailand Research
The CBD and Riverside are seen as the more high end locations due to either being in the centre of the city or by the attractive riverfront. This is reflected in the greater supply of rooms in the ULS. The Northern area is the main player in the Mid scale end of the market as it is located away
from the centre but access to the BTS makes it a popular location for businessmen and tourists seeking no-frills but still comfortable accommodation.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Future Supply Cumulative future supply of hotel rooms by grade and year, 2011 – 2013
Source: Colliers International Thailand Research
Nearly 1,400 rooms in the ULS are scheduled to be completed in 2011 and more than 6,000 rooms in the next two years in the ULS are scheduled to be added to the market. Due to the political protests during April and May 2010 a number of construction projects in the Northern CBD area postponed their opening date to 2011. It is interesting to note the significant amount of Upper/Luxury scale hotel rooms that are due to be supplied compared to those in the Mid Scale category. Normally is would be expected that Mid Scale trumps the combined supply of the ULS. This would seem to go against the trend for a greater demand from clientele for no-frills affordable accommodation as a consequence of the changing dynamics of the tourism market in the city. Many developers are still keen on the higher end hotel categories in Bangkok.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Cumulative future supply of hotel by location, 2011– 2013
Source: Colliers International Thailand Research
Sukhumvit is the most popular area for developments in the future, representing 34% 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 vibrant nature of the road. The eclectic nature of Sukhumvit has meant that it has attracted a significant number of boutique style hotels that challenge and innovate within the higher end segments. 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 due to its location amongst the most prestigious retail area, offices, embassies and BTS connections. Although Thailand has been afflicted with a myriad of problems during the past three years, Bangkok still remains a popular destination for foreign tourists and business people so there still remains a strong interest in developing hotels in Bangkok both from domestic and international investors.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Demand – Occupancy Rate Average Occupancy Rate of Luxury & Upper Scale Hotel during the years Q1 2009–Q1 201
Source: Colliers International Thailand Research
Average occupancy rates have been rising since Q2 2010 although Q4 2010 and Q1 2011 represent the traditional high season for the city. A better comparison is between the same quarter for different years which reflects seasonality. For the Luxury scale segment occupancy increased significantly in Q1 2011 compared to Q1 2010 from the mid sixties to the high seventies. However a small decrease was recorded in the Upper Scale segment with a few percentage points drop. Although lower room rates are a key factor for the positive numbers in the Luxury end market, another factor is likely to be the effect of last years events in April and May had on long term bookings that more directly impacted the high end hotels that cater for this traditional market. This probably accounted for the poor figures for Q4 2010 but the resumption of long term bookings later in 2010 had a beneficial effect on the occupancy in Q1 2011.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Demand Drivers Focus International Tourists Arrivals to Thailand at Suvarnabhumi International Airport by Quarter
Source: Department of Tourism
The figures relate to arrivals to the main airport in Thailand and many arrivals may depart for other resorts and cities rather than visiting Bangkok. However the numbers provide some indication as to Bangkok as a destination. Tourism numbers in Q1 2011 were strong compared to the previous quarter and the figures in Q1 2011 are the highest in the last 3 years. The total number of tourist arrivals to Suvarnabhumi in Q1 of 2011 was more than 3.4 million, an increase of approximately 9% from Q1 2010 and 13% from the previous quarter, This is despite the disaster in Japan, unrest in the Middle East and North Africa; and the severe floods and mudslides in 10 southern provinces of Thailand in March, which inversely impacted the tourism market to a degree. The disaster in Japan will have affected Japanese tourists, to judge from the number of foreign tourists arriving in Thailand at Suvarnabhumi international airport by Immigration Bureau. Although Japanese arrivals increased by 5.8% in March compared to the same month last year, this was less than the 10% increase recorded for February. As the disaster occurred at the end of March the real effect will be noticed in Q2 2011. The Japanese are an especially strong market in Bangkok as well as Chiang Mai.
Regional situation Thailand’s neighbours such as Cambodia, Vietnam, Laos and Myanmar are recording very robust growth rates in tourism arrivals. Although the numbers from these four countries together amount to about 60% of the total figures for Thailand, the continued growth which is far outpacing Thailand, will likely lead to further competition in the region as tourist infrastructure is upgraded in these emerging economies. Vietnam recorded a nearly 35% increase y/y in 2010 and now has 5 million visitors compared to Thailand’s 15.8 million. Further afield many other countries are showing better tourism growth numbers than Thailand for 2010. Singapore, Taiwan, Maldives, Philippines all grew at a much greater rate than Thailand. The new player for 2010 was Sri Lanka, which after years of bloody conflict is now gaining a peace dividend with a 45% increase in arrivals in 2010 with over 650,000 visitors in 2010. While Thailand is benefiting from the surge in Asian tourism, it remains one of the laggards.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Rates Average daily rate by grade for Q1 2010–Q1 2011
Source: Colliers International Thailand Research
Average daily rate (ADR) for Luxury scale hotels in Q1 2011 fell from the previous quarter by around 16%, due to the competition from Upper scale hotels and in a bid to drive up occupancy with, in all likelihood, corresponding pressure for a more competitive pricing in the long term booking sector. This could be termed as a form of ‘risk discount’ in which rates tend to be reduced due to the risk of political conflict reoccurring.
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The concern now is that the industry may be in the beginning of a rate reduction spiral especially with the expected future growth in supply in the Luxury sector. Hotels in this sector already are highly competitive when compared to other cities in the region.
Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011
Average Daily Rate of Luxury Hotel by Location, Q1 2010 – Q1 2011
Source: Colliers International Thailand Research
The ADR based on location shows mixed signals and is probably a throwback from the events of April/May 2010. Most of the disruptions last year occurred in the Northern and Southern CBD areas. As the Luxury end market relies on long term booking for a significant proportion of guests, travel operators have mitigated the risk of making such bookings in these areas with a corresponding reduction in rates. Tourists are increasingly sophisticated in their perceptions of a country and particular areas within that country and even within the cities itself. Through experience of travelling to Bangkok, talking to friends and the
information provided by the internet, future tourists can assume that the CBD is more riskier while Sukhumvit less so and this is reflected in the current rates. In light of this if current political tensions dissipate then this pricing effect will wither. However any ratcheting up of the political situation is likely to manifest itself in the CBD area and this will lead to a continued drag on rates due to the ‘risk discount’ factor.
Average daily rate of Upper scale hotel by location, Q1 2010 – Q1 2011
Source: Colliers International Thailand Research
The Upper scale hotels are increasingly in competition with Mid Range hotels for the emerging growth markets and, as a result, rates have remained on the low side. In contrast to Luxury hotels, this sector in
some locations actually reduced prices for the peak season, in anticipation of the fierce battle for visitors seeking more affordable accommodation.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 RevPAR RevPAR is the ADR multiplied by the occupancy rate, and is arguably the most important metric for analyzing the current health of the hotel industry. RevPAR by grade for Q1 2010 – Q1 2011
Source: Colliers International Thailand Research
The big drop in occupancy and room rates in Q2 of 2010 led to a subsequent dramatic fall in RevPAR in that quarter. After the situation returned to normal in Q3 and Q4, RevPAR also increased, quarter-toquarter until Q4 2010. The increase in RevPAR for the Upper scale market for Q1 2011 is on the back of an increase in occupancy while for the Luxury scale segment showed a slight decrease due to higher occupancy being more than cancelled out by lower room rates. On a comparison between Q1 y/y RevPAR fell dramatically due to lower rates in the Luxury segment but was stable for the Upper scale hotels. However while RevPAR is probably the most important statistic, any detailed analysis of the profitability of the hotel industry must also factor in non room revenue especially in the form of food and beverages (F&B). In some cases in the Luxury scale segment this can provide a very significant source of revenue. As many functions take place that bring in revenue not based on room occupancy there can be some disconnect between the F&B and room revenue components. Also the increase in occupancy will also positively reflect on F&B revenue as it is expected that the more guests the more F&B revenue is accrued. Although this relates to the ULS more than the lower scale segments.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011
RevPAR of Luxury hotels by quarter & location, Q1 2010 – Q1 2011
Source: Colliers International Thailand Research
A small recovery in RevPAR was recorded in every area except the Northern CBD which showed a steep drop for Q1 2011 compared with the same quarter in 2010. This was due to daily rates being reduced and
a corresponding fall in occupancy. The fact that the Northern CBD was the main area where the April/May protests took place is probably the main factor for this.
RevPAR of Upper scale hotels by quarter & location, Q1 2010 – Q1 2011
Source: Colliers International Thailand Research
RevPAR of hotel in all locations except the Riverside increased Q1 y/y due to the improved occupancy rate in every location. Sukhumvit
recorded especially strong numbers due to its increasing popularity among various tourist markets.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 SWOT Analysis from hotel developers and operators perspective Strengths Facilities and services in Luxury and Upper scale hotels in Bangkok are very good value and quality compared with other countries in the region. The hotel market contains a significant number of strong brands in all pricing categories and this looks set to continue. This leads to better choice for visitors. A significant boutique hotel component adds flair and a further creative backdrop in the market.
Weaknesses A significant number of hotels, especially in the Luxury/Upper scale segment are due to be completed over the coming few years and will exert even further pressure on a sector facing many difficulties. Such supply can only be absorbed if the tourism market in Bangkok shows continued growth, especially in its traditional markets. Hotels, especially in the Luxury sector, are under pressure to reduce prices in order to maintain occupancy. There is a danger that a price downward spiral is beginning to occur.
Opportunities The growing intra-Asian tourism market looks set to benefit every area that caters to tourism and Bangkok is no exception. With the development of the ASEAN Economic Community and various free trade agreements between ASEAN and economic heavyweights such as China, the growth in business travel is set to continue. As Bangkok remains by far the centre of commercial activity in the country the city will attract a growing number of business visitors requiring hotel accommodation.
Threats While the current political situation in the country has stabilized, tensions remain and while there remains a risk of an escalation of the situation then this is likely to affect the industry especially in the areas deemed most prone to flares ups. Other countries are becoming more appealing to tourists. Phnom Penh, Hanoi, Ho Chi Minh City, Vientiane and now Yangon offer the temptations of a frontier location that Bangkok has difficulty competing with due to its maturity as a tourism destination. On the other hand more tourism established cities such as Singapore, Hong Kong and Seoul are reinventing themselves to appeal to new markets. Singapore is especially effective in this regard with the development of integrated hotel complexes and sporting events such as the Grand Prix. Bangkok risks being squeezed between the two.
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011
APPENDIX
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 Hotel classification While the Thailand Hotels Association (THA) categorizes hotels with a star rating, many hotels do not abide by star ratings. Therefore in this study, Colliers International Thailand have produced a classification based on the quality of the hotel as assessed by the hotel management companies and the British Hospitality Association classification.
Basic overview of hotel classification Budget – hotels with limited or no facilities. Rooms are simple, with basic furnishings and sizes ranging from 12 to 18 sq m. Economy - comfortable, well equipped accommodation, with an ensuite bath/shower room. Reception and other staff aim for professional presentation that offers 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 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.
ZONING
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Upper scale - a degree of luxury as well as quality in the furnishings, décor and equipment, in every area of the hotel. Bedrooms will also usually offer more space and be well designed, with co-ordinate furnishings and décor. The ensuite bathrooms will have both a bath and a fixed shower. It will employ sufficient staff to provide services like concierge and porter service, 24-hour room service, laundry and dry cleaning. The restaurants will provide high-quality cuisine. 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.
Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011
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Bangkok Luxury & Upper Scale Hotel Market REPORT | Q1 2011 The centre of Bangkok contains the lion’s share of Luxury and Upper scale hotels in the city, being the heart of the city, for both business and tourism. Sukhumvit road up to Phrom Phong has its own distinct identity, its location being the main nightlife 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 microidentities, such as sois 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 has a mix of business travelers and family tourists. The Southern CBD includes the area bounded by Si Phraya, on the south side of Rama IV, Sathorn and the eastern side of Charoenkrung. It is
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primarily a location for offices with limited shopping facilities and reasonable entertainment areas that emulate 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 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 apart from the Mid Scale category.
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