Bangkok Hotel Market Report Q3 2010

BANGKOK LUXURY & UPPER SCALE HOTEL MARKET REPORT

THAILAND

www.colliers.co.th

Bangkok Luxury & Upper Scale Hotel Market EXECUTIVE SUMMARYThe hotel market continued to show weakness on account of the after e!ects of the April/May disturbances and the traditional low season.

Middle Eastern and Indian 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

The focus of attention is on Q4 2010 "gures 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 Q4 2010 and 2011 will further test hotels’ ability to absorb the shocks of the past 18 months.

MARKET INDICATORS Y/Y

Q2-Q3 2010

SUPPLY

DEMAND

RATES

OCCUPANCY

RevPAR

Q3 2010 | HOTEL

BANGKOK LUXURY & UPPER SCALE HOTEL MARKET REPORT | Q3 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 classi"cation

based on the quality of the hotel as seen through the eyes of the hotel management companies and on the British Hospitality Association classi"cation.

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 sta! aim for professional presentation that o!ers a wide range of straightforward services, including food and drink.

Mid scale - hotels are usually of a size to support higher sta#ng levels, and a signi"cantly 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 o!er 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 o!er more space and be well designed with co-ordinated furnishings and decor. The en-suite bathrooms will have both bath and

"xed shower. It will contain a high enough sta! 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 $awless 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. Sta! will be knowledgeable, helpful, and experienced in all aspects of customer care, combining e#ciency 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

HISTORICAL SUPPLY BY YEAR

CUMULATIVE SUPPLY IN BANGKOK


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 de"ned 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 o#ces. 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 o#ces 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.

HISTORICAL SUPPLY BY QUARTER

ADDITIONAL SUPPLY DURING THE YEAR 2000 – 2010


Source: Colliers International Thailand Research

Source: Colliers International Thailand ResearchRemark: E = Estimated supply

As of Q3 2010 there was a total supply of approximately 14,700 rooms with around 300 rooms added in Q3 of 2010 and about 340 rooms

scheduled to be completed and opened during Q4 2010. This year has heralded a signi"cant addition of new supply in Bangkok.

Since 2007 onwards more than 1,000 rooms were added every year and approximately 1,460 are scheduled to be completed in 2010, with around

1,100 rooms already completed.


HISTORICAL SUPPLY


Supply in the Northern CBD has shown the biggest movement in the past 2 years from approximately 3,160 rooms in Q1 2009 to more than around 4,000 rooms by Q3 2010, an over 26% increase. It has already overtaken the Riverside area as the greatest supply of rooms. This is not surprising at it is located not only in tourist and shopping areas but also in amongst o#ces and large embassies. While the Sukhumvit area is the dominant

player in the Mid scale and Economy scale ranges, 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 grown by 28% since Q2 2009 due to Sukhumvit’s diverse attractions, ever growing popularity and access to the BTS.

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 and supply in Riverside area still remaining 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 bene"t from this exclusivity in the future.

Source: Colliers International Thailand ResearchRemark: E = Estimated supply


LUXURY & UPPER SCALE HOTEL SUPPLY IN BANGKOK BY LOCATION

BREAKDOWN OF LUXURY & UPPER SCALE HOTEL ROOMS IN BANGKOK

BY LOCATION, Q3 2010




SUPPLY BY ZONE, AS OF Q3 2010

While in every area Upper scale hotel rooms are in greater supply, their proportion in relation to Luxury hotels re$ects the nature of each area. The Northern CBD contains the high end shopping malls comparable to what Calle Florida is to Buenos Aires or Bourke Street is to Melbourne. 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 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 explain why no Luxury hotels are located in these areas.



Nearly 1,460 rooms are scheduled to be completed in 2010 and more than 5,600 rooms in the next three years are scheduled to be added in the market. At the end of 2010 one luxury hotel will have been added to supply for the whole year. The Siam Kempinski (306 rooms) located in the Northern CBD, began operations in August 2010.

The instability in Q2 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. 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.

Although Thailand has been a%icted with a myriad of problems during the past three years, Bangkok still remains a favorite destination for foreign tourists and so many investors retain interest in developing hotels in Bangkok. Approximately 55% of the total rooms are in the Mid scale category followed by Upper scale and Luxury scale, with 25% and

20% respectively. As tourists seek value for money and the new growth markets in India for example generally focus on the lower priced categories, the case for Mid scale segment development is a compelling one. Developers may consider readjusting their plans to take account for this.

Source : Colliers International Thailand Research


FUTURE SUPPLY OF HOTEL ROOMS BY YEAR, 2010 – 2013

CUMULATIVE FUTURE SUPPLY OF HOTEL ROOMS BY GRADE AND YEAR, Q4 2010 – 2013


FUTURE SUPPLY

CUMULATIVE FUTURE SUPPLY OF HOTEL BY GRADE AND LOCATION, Q4 2010 – 2013

AVERAGE OCCUPANCY RATE OF LUXURY & UPPER SCALE HOTEL IN BANGKOK BY GRADE, FOR Q1 – Q3 2010



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 signi"cant number of boutique style hotels that

challenge and innovate within the high 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, o#ces, embassies and BTS connections.

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 so occupancy is expected to su!er in comparison. The occupancy rates of Luxury & upper scale hotels improved in Q3 after the media shifted focus to other con$icts around the world and the situation calmed.



DEMAND – OCCUPANCY RATE


Although Q3 2010 represented a strong bounce from the lows recorded in Q2 during the protests and rioting, occupancy still remains in the doldrums with a y/y comparison with Q3 2009. It is clear that the after e!ects of the Q2 events continue with many traditional tourist markets remaining fragile. In fact while overall tourist numbers are up y/y for Q3,

Upper and Luxury scale mainstay markets such as USA, Germany, UK, Scandinavia and Japan recorded downturns. This is likely as many tourists in the quarter make longer term bookings due to the school holiday period and many were probably put o! by the events that appeared on their TV sets in April and May.

The Riverside hotels showed the poorest "gures for occupancy as the traditional markets in Europe, USA and Japan have not picked up since Q2. Overall, although the numbers are up from Q2, the picture for Q3 is very disappointing. Q2 represents the low season for Bangkok for

western tourists and the traumatic events of May meant that a far greater rebound for Q3 was expected. Now the focus of attention will be on the peak season and advanced bookings so far are not promising.



OCCUPANCY RATE OF LUXURY & UPPER SCALE HOTELS BY QUARTER

OCCUPANCY RATE OF LUXURY & UPPER SCALE HOTELS, Q1 2010 - Q3 2010


GUEST ARRIVALS AT ACCOMMODATION ESTABLISHMENTS IN BANGKOK DURING THE YEAR 2007 – Q3 2010

AVERAGE DAILY RATE BY GRADE Q1 – Q3 2010

Source: O#ce of Tourism Development, Colliers International Thailand ResearchRemark: E = Estimated by Colliers International Thailand Research


Although tourism numbers were strong compared to the previous quarter the "gures only showed a small increase in comparison from Q3 2009. The bounce back from Q2 2010 provides scant encouragement as a large proportion of this increase came from new markets such as India and Iran, which with exceptions, are not traditional occupiers of Upper

and Luxury hotel rooms. This can be seen in the disconnect between fairly positive visitor numbers against that of low occupancy rates for Upper and Luxury scale hotels. However some of these hotels are noticing more reservations from these new markets for Upper and Luxury scale rooms.

The Luxury sector has been more prone to the political situation and many have o!ered steep discounts to attract guests and maintain a reasonable occupancy. The gap between Luxury and Upper scale has

narrowed as the tourists now visiting Bangkok are demanding more value for money.



DEMAND DRIVERS FOCUS

TOURISM

RATES


The need to retain occupancy has meant that rates are being driven down in the Riverside and Southern CBD. This may be due to the fact that hotels reduced rates for advanced bookings in the wake of events in May. However the appeal of the Sukhumvit area has meant less pressure

to enter into a price war. The Luxury scale hotels have felt greater pressure as they have reduced rates to attract customers wishing to economise.

The Upper scale hotels were able to maintain pricing except for the poorly performing Riverside area. It would appear that Upper scale hotels

are already competitively priced for the product that they o!er.



AVERAGE DAILY RATE OF LUXURY HOTEL BY LOCATION, Q3 2010

AVERAGE DAILY RATE OF UPPER SCALE HOTEL BY LOCATION, Q3 2010


REVPAR BY QUARTER IN BANGKOK

REVPAR OF LUXURY HOTELS BY QUARTER & LOCATION, Q3 2010



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.

The twin falls in occupancy and room rates led to a subsequent dramatic fall in RevPAR by approximately 58% from Q1 2010. This re$ects the full e!ects of the April/May period on the hotel market in Bangkok. Both

segments picked up for Q3 with Luxury hotels making gains by reducing pricing to increase occupancy.

The strong recovery in RevPAR was recorded in three areas while the Riverside continues to languish. The overall poor performance of the Riverside area is likely in part due to the reliance on tourists rather than

a mix of business travelers in the other hotels. The more re"ned nature of the Riverside area may attract the type of tourist who is more likely to be repelled by the events in May in Bangkok.



REVPAR


As in the Luxury sector the Riverside recorded poor RevPAR "gures for the same reason as stated above. Sukhumvit’s resilience to the travails of the city was evidenced by a robust Q3. In some ways the area is self contained with a mix of residential, hotels, retail as well as a lively

entertainment scene; events occurring in other parts of the city do little to a!ect the day to day life there. It is also probable that many of the guests in this area are returnees who are familiar with the ups and downs in the city and continue to return.


REVPAR OF UPPER SCALE HOTELS BY GRADE & LOCATION, Q3 2010




FORECAST – TWO VIEWS

THE POSITIVE VIEW

THE DARK VIEW

At this juncture it is di#cult to predict where the hotel market is heading in the future. Therefore two opposing forecasts have been adopted for

this particular report. Hopefully by the end of Q1 2011 a more clearer picture will emerge of where the industry is headed.

The tourist represents the eternal phoenix from the ashes. Undaunted by natural and man-made disasters, within a year or two they return again to enjoy the wonders of the a!ected country. Thailand is no exception. The land of smiles remains despite the events of May and around 60% of tourists to this country are returnees. This is an important number as many are less likely to be fazed by recent events and maintain a close connection with the country. By contrast the "gure for Malaysia is less than 20% and so any serious negative event would impact tourism far more. The hospitality that Thailand is so famous for cannot be simply replicated.

Although traditional markets are slow in returning to the country this is likely due to fewer advance bookings being made during the events of April and May. In all likelihood now that time is becoming a thing of the

past more bookings will made and tourists will come $ocking back to the country for the high season. While the new supply of hotels will provide challenging times for the industry, new markets in India, Russia and the Middle East are growing rapidly and are also providing strong numbers for the traditional low seasons of Q2 and Q3. The strong growth of tourism in Asia will soon be witnessed again in Thailand.

Bangkok bounced back strongly from the events in May and retains its strong blend of culture, entertainment and shopping which will continue to entice tourists to visit the City of Angels.

The tectonic plates of Thailand’s tourism industry may be shifting and Bangkok in particular. While the country is bene"ting from the stellar growth of the “RIM” markets (Russia, India & Middle East) who accounted for nearly 16% of total foreign arrivals by air in Q3 2010, these new markets do not represent at the present time strong growth opportunities for the Upper to Luxury end of the market as many visitors are keen on more a!ordable, no-frills accommodation.

The mainstay of the Upper/Luxury market is now under threat even in the longer term. While the appeal of Bangkok remains for European, American and Japanese tourists, many now may be avoiding Bangkok and head directly for the resorts as many now o!er international accommodation, retail and entertainment facilities that can even rival the capital. Frequent alcohol bans, cumbersome immigration regulations, armed police on the streets and tra#c gridlock are gradually eroding Thailand’s and especially Bangkok’s special status among western tourists.

Other big cities are luring tourists more than ever. Singapore as sin city? Hair cuts at the border a distant memory, think now of casinos and a

vibrant nightlife. Manila has built more tourist attractions and has seen numbers rise. Hong Kong still attracts shoppers and theme park visitors from around the world. New cities appear on the radar screen with dynamic Saigon and Hanoi in Vietnam and the colonial and cultural appeal of Phnom Penh. Time was when a visit to Bangkok brought kudos to the traveler in his or her own country, now the city is not much more exotic than Benidorm in the eyes of many and other less ventured cities become more appealing as a ‘wow’ destination. With the signi"cant amount of new supply coming on stream, Luxury and Upper scale hoteliers cannot rely on sophisticated, generous travelers returning to their establishments. The hotels may hold their noses when the busloads of baseball hat wearing package tourists following $ags enter their doors, but they must embrace them because they are the only means of survival.

COLLIERS INTERNATIONAL THAILAND MANAGEMENT TEAM PROJECT SALES & MARKETINGWasan Rattanakijjanukul | Manager

ADVISORY SERVICESNapatr Tienchutima | Manager

OFFICE, INDUSTRIAL & RETAIL SERVICESNarumon Rodsiravoraphat | Senior Manager

REAL ESTATE MANAGEMENT SERVICESBandid Chayintu | Associate Director

ADVISORY SERVICES | HOSPITALITY Jean Marc Garret | Director

INVESTMENT SERVICESNukarn Suwatikul | Senior Manager

RESIDENTIAL SALES & LEASINGPatima Jeerapaet | Managing Director

RESEARCHAntony Picon | Senior ManagerSurachet Kongcheep | Manager

VALUATION & ADVISORY SERVICESNicholas Brown | Associate DirectorPhachsanun Phormthananunta | Manager

PATTAYA OFFICEMark Bowling | Sales ManagerSupannee Starojitski | Business Development Manager

COLLIERS INTERNATIONAL THAILAND:

Bangkok O!ce 17/F Ploenchit Center, 2 Sukhumvit Road, Klongtoey,Bangkok 10110 ThailandTEL +662 656 7000FAX +662 656 7111 EMAIL [email protected] Pattaya O!ce 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 PiconSenior Manager | ResearchEMAIL [email protected]

RESEARCHER:

ThailandSurachet KongcheepManager | ResearchEMAIL [email protected]

480 o#ces in 61 countries on 6 continents

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