Bangkok Hotel Market Report Q4 2010

Bangkok Luxury & upper ScaLe HoteL Market report

thailand

www.colliers.co.th

Bangkok Luxury & Upper Scale Hotel Market ExEcutivE Summarythe Luxury and upper scale hotel market continued to show weakness on account of the after effects of the april/May disturbances and the traditional high season of Q4 did little to raise spirits. occupancy for Q4 was just around 60%, a full ten percentage points below the figure for Q4 2009.

Middle eastern, Indian and chinese visitors continue to bolster the Bangkok tourism industry which is a welcome support during the low season. However traditional tourist markets, the mainstay of the upper/Luxury segment, remain in the doldrums.

Future supply in 2011 and 2012 will further test hotels’ ability to absorb the shocks of the past 18 months.

upper scale hotels are driving rates down to compete with Mid range hotels for the more price conscious tourist and businessperson. Luxury hotels have largely maintained their rates with less incentive to drop them.

year end 2010 | HOTeL

markEt indicatorS y/y

2009 - 2010

Supply

ratES

occupancy

revpar

BangkOk Luxury & upper ScaLe HOTeL MarkeT repOrT | Q4 2010

COLLIERS INTERNATIONAL | P. 2

hotEl claSSification

BaSic ovErviEw of 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.

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 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.

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.



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 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 is on a mix of business travelers and family tourists.

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.


In 2010 a total of around 1450 rooms were added to supply, with around 330 rooms added in Q4 of 2010. the total number of rooms at the end

of 2010 was approximately 15,000.

Source: colliers International thailand research

hiStorical Supply By yEar

hiStorical Supply



additional Supply durinG thE yEarS 2000 – 2010

luxury & uppEr ScalE hotEl Supply in BanGkok By location

Source : colliers International thailand research


Since 2007 onwards more than 1,000 rooms were added every year and approximately 1,450 rooms for 2010.

after the financial crisis and aftermath during the years 1998 – 2005 no new supply was added in the riverside, Sukhumvit and eastern areas, with only the northern and Southern cBD areas accommodating new hotels during this fallow period. Supply in the northern cBD has shown

the biggest movement in the past four years from approximately 2,650 rooms in 2007 to more than around 4,000 rooms by Q4 2010, an over 50% increase.


the highest number of hotel rooms is located in the northern cBD area, representing 27% of the total. In the next two to three years the northern cBD area will still have the biggest share due to many of the future projects being located in the area. Supply in the riverside area still

remains static until one new hotel is 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 may benefit from this exclusivity in the future.

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 avenida paulista is to Sao paulo or nanjing road is to Shanghai. 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 Sukhumvit area contains a greater proportion of upper Scale room 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 explain why no Luxury hotels are located in these areas and only limited number of upper scale rooms. also these areas have limited concentration of tourist facilities.



BrEakdown of luxury & uppEr ScalE hotEl roomS in BanGkok By location, Q4 2010

Supply By ZonE, aS of Q4 2010



futurE Supply


cumulativE futurE Supply of hotEl roomS By GradE and yEar, 2011 – 2013


nearly 2,150 rooms in the Luxury/upper segments are scheduled to be completed in 2011 and more than 3,500 rooms in the next two years are scheduled to be added in the market.

Some construction projects in the northern cBD area postponed their opening date to 2011 due to temporarily halting construction during the protests at the rachaprasong junction in april and May. also the overall tourism downturn and future problems in this regard may lead to some projects slated for 2012 and 2013 not being completed at the scheduled

time. the concern going forward is the number of Luxury hotels that are due to be supplied. While tourism arrivals have grown this has come from new markets such as china and India and these visitors have a greater propensity to stay in Mid scale and economy scale hotels. target markets for Luxury and upper scale hotels have remained static or even shown declines such as uk, uSa and Japan. It remains to be seen if these markets can rebound. global financial concerns continue to haunt many industrialized nations and fierce competition from other cities in asia for tourists make this highly uncertain.



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 back streets. 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 and so many investors retain interest in developing hotels in Bangkok.


cumulativE futurE Supply of hotEl By location, 2011 – 2013




dEmand – occupancy ratE

avEraGE occupancy ratE of luxury & uppEr ScalE hotEl durinG thE yEarS 2000 - 2010


average occupancy rate in the last five years has been in more or less steady decline from the heights of 2004 at more than 75% to around

52% due to political unrest in Bangkok, the growth in new supply, the appeal of other cities in the region and the global economic slowdown.


the protests at the centre of Bangkok seriously impacted hotels around the protest site, therefore average occupancy rate in Q2 dropped approximately 50 - 55% from Q1 2010. the numbers grew back in Q3

when the situation returned more or less to normal but the peak season of Q4 has failed to show strong figures that the industry was hoping for.

the riverside hotels still showed the poorest levels in the last quarter for occupancy as the number of higher spending foreign tourists has not picked up since Q2. Luxury hotels in the Sukhumvit area has shown the highest occupancy rate for the year, while in the Southern cBD area is

the leader for upper scale hotels. overall, although the average occupancy rates in Q4 increased from Q3 by more than 5% the average occupancy rate in 2010 is still lower than 2009 by approximately 14%.



avEraGE occupancy ratE of luxury & uppEr ScalE hotEl in BanGkok By GradE, for Q1 – Q4 2010

occupancy ratE of luxury & uppEr ScalE hotElS, Q1 – Q4 2010


/



avEraGE occupancy ratE of luxury & uppEr ScalE hotEl compariSon BEtwEEn Q4 2009 and Q4 2010 By location


In what is usually one of the strongest quarters of the year occupancy remained in the doldrums compared with the previous Q4 in 2009. In fact the figures were even lower and especially in the northern cBD which bore most of the brunt of the protests in april and May. clearly the

effects of the violence in May are still having a detrimental effect on the hotel market. this is probably due to a reduction in advance bookings from traditional tourism markets.

dEmand drivErS focuS

touriSm

GuESt arrivalS at accommodation EStaBliShmEntS in BanGkok durinG thE yEar 2007 –2010

Source: Department of tourism and colliers International thailand researchremark: e = estimated by colliers International thailand research

although tourism numbers were strong compared to the previous quarter, the figures in Q4 2010 are still lower than other years for the same quarter. the total number of tourists staying in hotels in 2010 was

nearly 11 million; a decrease of approximately 15% from 2009, due to the political unrest in Q2. Some efforts have been made to entice tourists back to the city but many challenges remain.

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For the past two years rates have been in steady decline as hotels reduce prices in order to compete for the new growth markets in India, china and russia. Bangkok is increasingly becoming a value for money destination especially among asia travelers where currencies have

remained strong in relation to the Baht. However there are concerns that the market is rushing to the bottom in light of continued problems both internationally and domestically.


avEraGE daily ratE By GradE durinG thE yEar 2005 - 2010


micE markEt

ratES

the lucrative MIce market in Bangkok continues to suffer due to the protests and continued uncertainty. Many organizers do not want to take the chance of booking in the city during an election year and the previous State of emergency made it difficult to obtain insurance coverage. even after a resolution to its problems the city will still face difficulties attracting the MIce market. there are limited hotel facilities close to

existing convention centres and very strong competition from many other cities in the region for the MIce money.

In fact efforts are being made to promote the domestic MIce market which usually benefits the lower category hotel market.



avEraGE daily ratE of luxury hotEl By location, Q1 – Q4 2010


the riverside emerged again as the most expensive location as it targets quality over quantity especially over the christmas/new year period. However this appeared to be at the expense of any uptick in occupancy. In all locations rates increased for the peak season as hotels sought to

profit from the expected increase in visitors which did not materialize. In some senses Luxury hotels have less price elasticity as this segment is not in direct competition with the lower grade hotels.

avEraGE daily ratE of uppEr ScalE hotEl By location, Q1 – Q4 2010


the upper scale hotels are in increasingly in competition with Mid range hotels for the emerging growth markets and as a result rates have remained on 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.



In the Luxury segment rates were lower in 2010 than the corresponding quarter of 2009 except the riverside. In the upper segment rates

remained fairly static.


avEraGE daily ratE of luxury & uppEr ScalE hotEl compariSon BEtwEEn Q4 2009 and Q4 2010 By location

the twin falls in occupancy and room rates led to a subsequent dramatic fall in revpar by approximately 28% from 2009. this reflects the full

effects of the april/May period on the hotel market in Bangkok.


rEvpar By QuartEr in BanGkok

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 of luxury hotElS By QuartEr & location, Q1 – Q4 2010


the strong recovery in revpar was recorded in every area while the Southern cBD was lowest due to poor occupancy rates. the overall performance of the Southern cBD area is likely in part due to the reliance on tourists rather than a mix of business travelers in the other hotels.

the riverside increased rates significantly for the peak Q4 while maintaining occupancy, hence the sharp increase in revpar.

rEvpar of uppEr ScalE hotElS By QuartEr & location, Q1 – Q4 2010


revpar of hotels in the riverside area was the lowest in the upper scale category. Sukhunvit suffered most for Q4 with an actual decline in

revpar for the Q4 high season.


there will be no respite for the Luxury and upper scale hotel market in 2011 as around 2,150 rooms are scheduled to be completed in the year. With ongoing protests in the centre, an election year, continued global financial concerns and Bangkok’s difficulties in attracting visitors; it will be difficult to see how such an increase can be absorbed and occupancy is likely to continue to suffer. However developers and hotel management companies are still keen to enter the market and in some ways the hotels are becoming a victim of their own success.

the growing numbers of tourists from new markets such as India, china and russia look set to reshape the hotel market in Bangkok. these visitors look for more economical establishments and it appears that upper scale hotels are in fierce competition for this growth market with corresponding reductions in rates. In the future upper scale hotels could reduce the facilities in order to better compete in what is likely to be a more no-frills style of operation.

Luxury hotels have less room to maneuver and are likely to maintain rates as befits their luxury status and just hope for the wealthier tourists to return in greater numbers. the new supply of Luxury hotels coming online over the next two years pose enormous problems for this sector already struggling with occupancy. tourism numbers from key traditional markets of europe, Japan and the uSa are key to how this segment copes. the MIce market is underperforming due to the political problems deterring organisers from taking the plunge. the recent end of the State of emergency could help in the future.

While tourism figures for thailand on the surface look positive the big number hides problems for Bangkok as a tourism destination. on the one hand those seeking exoticism and adventure are increasingly lured by cities that have emerged as tourist destinations only recently such as Hanoi, phnom penh and Vientiane. For those seeking a more organized city with plenty of attractions then Singapore and Hong kong have raised their games. In fact Singapore, occupying just a small piece of land without any real beach, can command nearly the same numbers of tourists as the whole of thailand. Bangkok as a city remains much the same as it was for tourists ten years ago and has failed to refresh itself to attract more visitors and provide them with a reason to return or visit for the first time.

private enterprise continues to work hard in the market, the city boasts so many innovative boutique and strong branded hotels that offer guests an experience in itself. However the city and the country as a whole create an image that seems distant from the situation today. the use of “Land of Smiles” and elephants is rather out of date as the relationship between tourist and the city is less warm than in the past; witness the treatment of tourists during the frequent weekend alcohol bans. Bangkok is in the mature stage of its tourism cycle while Ho chi Minh city, for example is in its early stages. this poses new challenges as the city must do more to attract people to visit its many charms.

forEcaSt

occupancy rates and aDrs of each hotel category in Q4 2010 was lower than in the same period of 2009, so revpar in Q4 of 2010 was less than

2009 apart from Luxury hotels in the riverside which recorded a slight gain.


rEvpar of luxury & uppEr ScalE hotEl compariSon BEtwEEn Q4 2009 and Q4 2010 By location


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colliErS intErnational thailand manaGEmEnt tEam

aDVISory SerVIceS | HoSpItaLIty Jean Marc garret | Director reSIDentIaL SaLeS & LeaSIngnuttaya Junhasavasdikul | Manager oFFIce & InDuStrIaL SerVIceSnarumon rodsiravoraphat | Senior Manager retaIL SerVIceSasharawan Wachananont | Senior Manager aDVISory SerVIceSnapatr tienchutima | associate Director

reaL eState ManageMent SerVIceSBandid chayintu | associate Director

InVeStMent SerVIceSnukarn Suwatikul | associate Director Wasan rattanakijjanukul | Senior Manager

reSearcHantony picon | associate DirectorSurachet kongcheep | Senior Manager

VaLuatIon & aDVISory SerVIceSnicholas Brown | associate Directorphachsanun phormthananunta | associate Director

pattaya oFFIceMark Bowling | Senior Sales ManagerSupannee Starojitski | Senior Business Development Manager / office Manager

cOLLIerS InTernaTIOnaL THaILand:

Bangkok Office 17/F ploenchit center, 2 Sukhumvit road, klongtoey,Bangkok 10110 thailandtEl +662 656 7000fax +662 656 7111 Email [email protected] pattaya Office 519/4-5, pattaya Second road (opposite central Festival pattaya Beach), nongprue, Banglamung, chonburi 20150tEl +6638 427 771fax +6638 427 772 Email [email protected]

rESEarchEr:

thailandantony piconassociate Director | researchEmail [email protected]

rESEarchEr:

thailandSurachet kongcheepSenior Manager | researchEmail [email protected]

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Bangkok Hotel Market Report Q4 2010