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 |
2 n d Q U A RT E R
|
2010
Executive Summary The protests and rioting over April and May wreaked havoc for the hotel market for Q2 with occupancies plummeting to all time lows, some even to single digits. Market Indicators Q2 2009 - Q2 2010
SUPPLY (Q1-Q2) demand Rates Occupancy RevPAR
A number of hotels were forced to close their doors as they were located next to or within the protest area. June provided a silver lining as occupancies rose dramatically when Bangkok ceased to be the centre of media attention. Middle Eastern and Indian visitors returned to Bangkok providing welcome support during the low season. The focus of attention is on Q4 2010 figures which will provide guidance on whether the Bangkok hotel market has fully recovered, further disruptions permitting. Concerns remain as to the nation’s course for the future and whether further protests or sporadic violence occurs. Travel advisories based on the continued State of Emergency continue to be a dark cloud on the horizon. Future supply in H2 2010 will further test hotels’ ability to absorb the shocks of the past 18 months. The Northern CBD has overtaken The Riverside as the biggest supplier of Luxury/Upper Scale rooms. However this is likely to be short lived with Sukhumvit set to dominate in the coming years.
www.colliers.co.th
The Knowledge Report | 2nd 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 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 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 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 coordinated 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, 24hour 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. 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.
2
Colliers International
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.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
ZONING
Colliers International
3
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
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 sois 4, 7, 8 11 and 22. It is interesting to note that for almost all of duration of the protests the area went about it business largely unaffected. Hotel occupancies, whilst down, remained resilient during this time. 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. As the Northern CBD was largely included in the protest sites, the area was very seriously affected with a number being forced to close during May.
4
Colliers International
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. This area bordered the protest site area and was seriously affected by the protests and later riots. One hotel, the Dusit Thani, suffered some limited damage as a result of rioting during the May 19 crackdown. 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. While not directly affected by the protests and riots, the area suffered by being isolated from other parts of Bangkok as a result. 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 initial protests that occurred in April affected this area more.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Historical Supply Total Supply end of Q2 2010
Source : Colliers International Thailand Research Remark : E = Estimated supply
Supply of Luxury and Upper scale hotel rooms in Bangkok continued to grow after the Asian Financial Crisis in 1997 fulfilling the demand from the ever increasing number of tourists visiting the city partially ignited by the weakening of the Baht during that time. About an average of 400 rooms per year were added from 1998 to 2006. However after this, supply grew more quickly with over 1,000 rooms added each year after that and the trend
is set to continue for this year and the next. As of Q2 2010 there was a total supply of approximately 14,400 rooms with around 700 rooms added in the first half of 2010 and more than 1,300 scheduled to be completed and opened during the second half of 2010. This year is likely to witness the greatest addition of new supply ever in Bangkok.
Colliers International
5
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Luxury & Upper scale hotel in Bangkok by year & location, 1995 - Q2 2010
Source : Colliers International Thailand Research Remark : E = Estimated supply
Supply in the 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 by Q2 2010, an over three fold increase. It has already overtaken Riverside as the biggest supply of rooms. While the Sukhumvit area is the dominant player in the Mid
scale and Economy scale range, these are mostly not covered in this report. In terms of the Luxury/Upper end the area currently lags behind the CBD and Riverside areas but has shown rapid growth in the latter part of the last decade due to Sukhumvit’s diverse attractions and ever growing popularity.
Breakdown of Luxury & Upper scale hotel rooms in Bangkok by location, Q2 2010
Source : Colliers International Thailand Research
The highest number of hotel rooms are located in the Northern CBD area representing 26% of the total, but in the next 2 – 3 years the Sukhumvit area will have the biggest share, due to most of the future projects being located in the area and supply in Riverside area still remaining static until one new hotel is
6
Colliers International
expected to be completed in 2013. 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 Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Supply by Zone, as of Q2 2010
Source : Colliers International Thailand Research
While in every area Upper scale hotels 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 Champs-ÉlysÊes is to Paris or Myeong-dong is to Seoul. Therefore 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. The freewheeling nature of Sukhumvit means far more Upper scale hotels in comparison. In the next 2 years this area will contain more Upper scale hotel rooms, as more than 1,500 rooms are scheduled to be completed. The distance of the Eastern area and Northern area from the centre explain why no Luxury hotels are located in this area.
Colliers International
7
The Knowledge Report | 2nd 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
Nearly 2,000 rooms are scheduled to be completed in 2010 and more than 4,000 rooms in the next 3 years will be added in the market. Two hotels in the Luxury end of the market are due to open their doors in 2010. The Siam Kempinski (306 rooms) located in the Northern CBD, is scheduled to begin operations in August 2010, although on 22 July they plan to have a soft opening. The 198 room St. Regis Bangkok is scheduled to be open its doors from October 2010.
The recent instability has directly impacted the tourism market especially in the city. Many of the hotel projects under construction in Bangkok, especially in Northern CBD area, temporary stopped construction during the protests at Rachaprasong junction in April and May and this might lead to delays in completion and opening.
Future supply of hotel rooms by grade and year, 2010 - 2013
Source : Colliers International Thailand Research
Although Thailand has been afflicted with a myriad of problems during the past 3 years, Bangkok still remains a favorite destination for foreign tourists; so many investors retain interest in developing hotels in Bangkok, although approximately 55% of 8
Colliers International
the total are for Mid scale hotels followed by Upper scale and Luxury scale, with 25% and 20% respectively. As tourists seek value for money, the case for Mid scale segment development is a compelling one.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Future supply of hotel by grade and location, 2010 - 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 Sukhumvit road and its many lively sois. The eclectic nature of Sukhumvit has meant that it has attracted a significant number of boutique style hotels that challenge and
innovate within the high end 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 due to its location amongst the most prestigious retail area and BTS connections.
Colliers International
9
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Demand - Occupancy Rate Average occupancy rate of Luxury & Upper scale hotel in Bangkok by grade, for Q1 and Q2 2010
Source : Colliers International Thailand Research
The protest at the centre of Bangkok seriously impacted the number of foreign tourists, so average occupancy rate in Q2 dropped approximately 50 - 55% from Q1 2010 in both hotel categories and some hotels in the area around the protest site were forced to close. However Q2 2010 represents the traditional low season
10
Colliers International
so occupancy is expected to suffer in comparison. The occupancy rates of Luxury & Upper scale hotels improved after the media shifted focus to other conflicts around the world and the situation calmed.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Occupancy Rate Occupancy rate of Luxury & Upper scale hotels, 2005 - Q2 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 previous low point 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 num-
bers of international travelers stranded exacerbated by the severe global economic downturn. The recovery that started to occur in 2009 and continued into 2010 stalled in Q2 2010.
Occupancy rate of Luxury & Upper scale hotels by quarter
Source : Colliers International Thailand Research
Occupancy rates were low even compared to the previously low rates recorded in Q2 2009. The emergence of the Bangkok tourism market from the airport blockade and rioting during April of
2009 took another severe blow in April and May 2010 as the city took centre stage for all the wrong reasons.
Colliers International
11
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Occupancy rate of Luxury & Upper scale hotels, 2005 - Q2 2010
Source : Colliers International Thailand Research
In Q2 2010 the occupancy rate of luxury hotels in the Sukhumvit area was higher than other areas, while Southern CBD and Sukhumvit area has shown a highest occupancy rate for Upper
12
Colliers International
scale hotels. The Northern CBD showed the greatest falls from Q1 to Q2 due to the location of a significant proportion of the protests in this area.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Demand drivers focus Tourism International passengers to Suvarnabhumi Airport minus those in transit
Source : Airports Authority of Thailand, Colliers International Thailand Research
While Q1 showed a healthy increase from the same quarter the previous year the corresponding Q2 showed a decline. However this was minimal and is somewhat surprising after the protracted and then dramatic events that culminated in violent rioting in
May. It must be stated that many of these arrivals were likely to travel to other parts of Thailand that were less affected by the riots.
Colliers International
13
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Guest arrivals at accommodation establishments in Bangkok during the year 2007 - Q2 2010
Source : Office of Tourism Development, Colliers International Thailand Research Remark : E = Estimated by Colliers International Thailand Research
Tourists (Thais and foreigners) who stayed in hotels in Bangkok during Q2 2010 dropped roughly 35% from Q1 2010, due to the political turmoil but also the traditional low season that occurs in Q2 and Q3 of each year. The comparison with previous Q2s shows the effects of events in April and May but that the fall was not as dramatic as once predicted. The pick up in visitors in June
showed that already green shoots for the hospitality industry are evident but it is still too soon to evaluate if this will lead to a revival in numbers for the beginning of the high season in Q4 and continued sporadic disruptions and violence is a significant caveat underpinning this.
Main markets of Bangkok tourism.
Source : Colliers International Thailand Research
The traditional mainstay for the Bangkok tourism market, East Asia, has been in strong decline since 2006. The coup of that year and ongoing Thailand political instability hereafter has deterred travelers from this region as they are more sensitive to such situations. Other traditional markets have remained fairly stagnant with Europe affected by the global economic crisis and currency weakness. However significant growth has come from newer markets in the form of Russia, India and the Middle East. 14
Colliers International
The effect is more pronounced as people from the latter two visit usually during the low season when temperatures in their own countries can be unbearable. Although this represents an exciting area for development such growth comes from a low base and does not offset the declines in East Asia. With continued expansion of these heavily populated new markets, they are likely to affect the dynamics of the tourism market in Bangkok in the coming years.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Rates Average daily rate by grade 2005 - Q2 2010
Source : Colliers International Thailand Research
Average daily rate of both grades in Q2 2010 have fallen from Q1 by approximately 18%. Hotels have reduced rates in the
aftermath of the May riots to attract customers as well as the usual drops in rates during the low season.
Average daily rate of luxury hotel by grade & location, Q2 2010
Source : Colliers International Thailand Research
Hotel rates decreased from Q1 2010 in every location, even the area outside the protest zone, such as The Riverside although Sukhumvit has taken a lesser hit due its location away from the
site. It is also likely that Sukhumvit also contains a greater number of returning visitors who are less sensitive to the travails of Thailand and room rates were already lower in comparison.
Colliers International
15
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Average daily rate of Upper scale hotel by grade & location, Q2 2010
Source : Colliers International Thailand Research
In Q2 2010 the average daily rate in Sukhumvit actually increased from Q1 2010, while there were falls in other locations. This can be partially explained by the fact that many guests moved or rebooked to Sukhumvit and away from other
locations during April and May. The higher rates charged by the other locations was then reflected in the rates offered in Sukhumvit for this time. It is therefore very likely that this represents an aberration rather than a trend.
RevPAR
Historical revpar
Source : Colliers International Thailand Research
The twin falls in occupancy and room rates led to a subsequent dramatic fall in RevPAR by approximately 58% from Q1 2010. 16
Colliers International
This reflects the full effects of the April/May period on the hotel market in Bangkok.
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
RevPAR of luxury hotels by grade & location, Q2 2010
Source : Colliers International Thailand Research
Steep falls were recorded in all locations with the Northern CBD showing the steepest declines as many hotels shut their doors due to the events. RevPAR of upper scale hotels by grade & location, Q2 2010
Source : Colliers International Thailand Research
RevPAR in the Southern CBD and Sukhumvit areas were higher than other areas due to the specific locations during the protests
and rioting in May. Few, if any hotels, were spared the effects of events in April and May 2010.
Colliers International
17
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
Forecast Even in good times the hotel market faces strong challenges in the form of significant new supply entering the market over the course of the next few years and ever growing competition from the serviced apartment sector. But these are far from good times. The maelstrom of April and May rocked the industry like never before and it is still feeling the after effects exacerbated by the extension of the State of Emergency further justifying travel advisories from a number of countries. While the situation has calmed and fears of a repeat have receded for the time being, the development of the industry in Bangkok will remain a nervy one for the foreseeable future. But the scene of tourists cramming the narrow pavements on Sukhumvit road and elsewhere at the end of June can only motivate those prepared to tough it out. Investors focus The issue of abundant supply in the Luxury hotel segment in the next few years should cause pause for thought for 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 niche markets 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. 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. 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 both guests and non-guests through the promotion of MICE and other revenue generating activities such as birthdays and anniversaries. The need to attract niche markets is becoming increasingly prevalent and operators should try and differentiate themselves as much as possible from their competitors and dissociate from a “me too� approach. While branding may aid this process in specific cases, it is not the be-all and end-all and the guest experience goes far beyond this. The growing markets in the Middle East and South Asia can be further engaged by targeting individual countries within each region. A further breakdown on tourism statistics for the Middle East would be useful. The South East Asian market, spurred by low cost carriers and short term decision making can be targeted with long weekend getaway packages. As sixty percent of visitors have visited Thailand before, hotels would be wise in offering incentives for existing guests to return such as anniversary packages for honeymooners. Some hotels respond to online travel forums such as Tripadvisor to both positive and negative comments regarding their establishment. This helps to create a more personal touch and increase the chances of guests returning. Other options include creating special pages on social networking sites to keep people informed of new developments and offers. The nurturing of niche markets, the creation of innovative revenue generators and growing a loyal customer base will focus the minds of operators in these very challenging times.
18
Colliers International
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Luxury & Upper Scale Hotel Market
COLLIERS INTERNATIONAL THAILAND MANAGEMENT TEAM
480 offices in 61 countries on 6 continents US$ 1.9 billion in annual revenue
ASSET MANAGEMENT Wasan Rattanakijjanukul | Manager Nukarn Suwatikul | Manager
1.1 Billion square feet under management 15,000 Professionals
CONSULTANCY Napart Tienchutima | Manager COMMERCIAL / INDUSTRIAL /RETAIL Narumon Rodsiravoraphat | Senior Manager FACILITY / PROPERTY MANAGEMENT Viroj Piromthong | Management Advisor Bandid Chayintu |Associate Director
Contact information
HOSPITALITY DIVISION Jean Marc Garret | Director INVESTMENT Nukarn Suwatikul | Senior Manager
THAILAND: Patima Jeerapaet Managing Director
Antony Picon Senior Manager | Research
patima.jeerapaet@colliers.com
antony.picon@colliers.com
RESIDENTIAL Patima Jeerapaet | Managing Director
Jean Marc Garret Director | Hospitality
Surachet Kongcheep Manager | Research
jean.garret@colliers.com
surachet.kongcheep@colliers.com
RESEARCH & ADVISORY Antony Picon | Senior Manager Surachet Kongcheep | Manager
Colliers International Thailand
VALUATION Nicholas Brown | Associate Director Phachsanun Phormthananunta |Manager
Bangkok Office : 17/F Ploenchit Center, 2 Sukhumvit Rd. , Klongtoey, Bangkok 10110 Tel: 662 656 7000 Fax: 662 656 7111 Email : info.th@colliers.com
PATTAYA OFFICE Mark Bowling | Sales Manager Supannee Starojitski |Business Development Manager
Pattaya Office : 519/4-5, Pattaya Second Road (Opposite Central Festival Pattaya Beach), Nongprue, Banglamung, Chonburi 20150 Tel: 6638 364 411-2 Fax: 6638 364 414 Email : info.pattaya@colliers.com This report and other research materials may be found on our website at www.colliers.co.th. Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies.
www.colliers.co.th
Colliers International
19