Opportunities, Challenges And The Outlook Of The Singapore Hospitality Industry
Singapore is a popular tourist destination in the Southeast Asia region, and it’s an important component of the country’s economy as well as a source of foreign exchange income. The country is one of the easiest places to do business. As a result, a lot of leisure and business travelers are visiting Singapore, which has led to the thriving of the hospitality industry.
The country’s hospitality industry has been growing .fast in recent times thanks to the country’s food industry and hotels. Singapore’s’ tourism and hospitality industry attracts visitors from various parts of the world, but most of its visitors are mainly from India, Malaysia, and China, among other Southeast Asian nations. However, visitors from the western world are also not far behind, and they have been increasing in recent years. Considering there are large numbers of visitors coming to Singapore annually, this gives the hospitality industry a massive boost to continue growing.
Current status of the hospitality industry in Singapore
According to the World Bank, Singapore is among the top-ranked countries in ease of doing business. This has been the driver of growth for the hospitality industry since it offers a positive signal and boosts for more opportunities. It is easier to attract foreign businesses to the country because of its liberal laws, tax concessions, and easier loans, which have helped in the establishment of hotels. Similarly, liberal laws make it possible for foreigners to buy real estate, which, in return, has repaid the hospitality industry through the construction of hotels.
The industry seems to be more promising as it emerges from a downcycle. Hotel rooms on the pipeline have been decreasing, which is a sign of stagnation in the hotel sector. According to the Singapore Tourism Board (STB), tourism revenues have averaged around $23 billion in the last few years and have been slowing mainly due to the stagnation of the hotel sector.
However, in the past year, despite the slowing global economy, the industry has held up with tourist arrivals in Singapore growing. Visitor arrivals increased by 2.3% in the first ten months of 2019 to around 15.85 million. This was within reach of the STB’s projection of around 18.7 million to 19.2 million visitors. The tourism board also indicates that revenue per available rooms (RevPAR) hit S$191.40 up from S$189.20 in 2018.
Opportunities in Singapore’s hospitality industry in 2020
There are signs that the hospitality industry expects a cyclical upturn this year driven opportunities like conferences, recovery if RevPAR, limited supply, and mergers & Acquisitions.
Increase in number conferences
Singapore expects a return of conferences in 2020, such as the Air Show expected next in February as well as other new conferences. This is a massive opportunity for hotel REITs to leverage this year. Most interesting is the high portfolio occupancy, which will be a leeway for hoteliers to hike room rates because of the increase in demand.
According to DBS Equity Research analysts Derek Tan, occupancy rates currently stand at more than 90%, which is a sign that demand is still strong. As a result, hoteliers will get an opportunity to increase room rates, which is an indication growth will result from the hike in the average daily rate.
Mergers and Acquisitions
With strong demand and limited supply, there are several opportunities, and the industry will see mergers and acquisitions, which will be a major driver of growth. Tan indicated that the merger between Ascendas Hospitality Trust (A-HTRUST) and Ascott Residence Trust (Ascott REIT) will be a major boost for the hospitality. This will be the largest hospitality REIT in the region with the potential of boosting growth in the industry.
Challenges facing hospitality in Singapore
The hospitality industry in Singapore faces a myriad of challenges, with tourism receipts being the most affected. In the first half of last year, tourism spend dropped 3% despite visitor arrival growing by 1.3%, which might be associated with the slowing to the global economy.
Slowing global economy
The hospitality is highly sensitive and depends on economic growth and consumer confidence. However, in the past year, the global economy slowed, and due to the global uncertainties, tourists tightened their spending. As a result, visitors for business travel and meetings, incentives, conferences, and exhibitions sector slowed.
Political instability in the region is a significant challenge to the hospitality industry. The recent protests in Hong Kong that have dragged for months may have hurt the hospitality industry. Hong Kong is a neighbor of Singapore, and the instability had sudden and significant effects on the hospitality industry. There are other geopolitical risks in the region, such as unexpected changes in China’s foreign policy as well as the situation of North Korea.
In 2016 the hospitality industry in Singapore was affected by the outbreak of the Zika virus. The outbreak dissuaded people from traveling to Singapore. Equally in 2003, when there was an outbreak of the SARS virus, and this led to a decline in the number of travelers to the country by over 70%. Therefore such outbreaks impede t growth of the industry.
The outlook of the hospitality industry in Singapore
The hospitality industry in Singapore is expected to show significant growth. Singapore expects a massive pipeline of events to support the hospitality and hotels will be buzzing with conferences. This will be very important, especially against a backdrop of muted supply growth, and the supply of hotel rooms is likely to grow by around 1.1% this year. Equally, hotel room supply is expected to grow at a CAGR of 1.3% in the next three years.
Interestingly most of the increase in supply in the next three years will come from the upscale and luxury segments that are likely to compete with listed REITs. Visitor arrival and RevPAR is expected to grow by between 2% and 5% in 2020. For instance, Ascott Residence Trust is expected to see an upside considering it can leverage its cash position to take up some potential acquisitions. The hospitality industry, which includes the travel industry, food service industry, and hotel industry, are all expected to gain significantly because of the measure the Singapore government has taken to promote the industry.