The hotel sector in the region has been somewhat of an investment magnet of late, fueled by tourism growth – particularly, the strong intra-Asian travel – ongoing infrastructure development, new attractions, and healthy trading performance of hotels.
Global investors seeking yields and portfolio diversification are now evaluating hotel assets as a viable investment option – they are no longer seen as fringe investments. Although the near-term demand fundamentals remain sound for the Asia Pacific hotel sector in general, market dynamics would naturally differ from country to country.
In Singapore for example, the government’s recent announcement of the hike in development charges, could put a dampener on hotel development projects. This, combined with the already high land costs, is therefore likely to put off any new development and refocus capital on existing projects or those properties that can be easily converted to hotel use within the existing plot ratio. As such, Colliers expects this to continue to fuel interest in existing properties, with the hunt for yield giving away to long term capital appreciation for investors in the city state.
Market conditions aside, there is this other issue: What does the future hold? Hotels are specialised assets and are increasingly disrupted by technology, changing consumer trends, and new operating models arising from the growth of sharing economy. Hotel investment decisions are becoming more complex than ever.
First of all, it is important to differentiate between a market research report and a feasibility study. Whilst a market research report may do well in providing enough information for decision making for ‘traditional’ assets, for hotels and for that matter other any property type that has dynamic cash flows such as casinos, golf, meetings, incentives, conference and exhibitors (MICE) etc, this is hardly sufficient. The true value in a feasibility study is not to gain market data (most of which is readily available in this age) but in obtaining insight, information and recommendations from specialists who have had hands on experience in the industry. In doing so, it is about developing a proposition that is:
In an increasingly competitive environment, it is vital that hotels stay relevant well into the future, at least taking their fair market share. Preconceived concepts may work in less mature destinations, but as experience has taught us, these have a habit of not remaining relevant, at tremendous cost to the owner over time.
Download Colliers Hotel Insights Q2 2019 report.
Check in with Colliers today to find out how our global network and expertise can help you get the most out of your investments.
In Singapore for example, the government’s recent announcement of the hike in development charges, could put a dampener on hotel development projects. This, combined with the already high land costs, is therefore likely to put off any new development and refocus capital on existing projects or those properties that can be easily converted to hotel use within the existing plot ratio. As such, Colliers expects this to continue to fuel interest in existing properties, with the hunt for yield giving away to long term capital appreciation for investors in the city state.
Market conditions aside, there is this other issue: What does the future hold? Hotels are specialised assets and are increasingly disrupted by technology, changing consumer trends, and new operating models arising from the growth of sharing economy. Hotel investment decisions are becoming more complex than ever.
The hotel feasibility study – is it worth the time and cost?
As the time for ‘build it and they will come’ ends for many destinations as they mature, and with an ever-increasing competitive environment, investors have begun to ask the right questions. Questions, that in our opinion must always be asked before a hotel is built.First of all, it is important to differentiate between a market research report and a feasibility study. Whilst a market research report may do well in providing enough information for decision making for ‘traditional’ assets, for hotels and for that matter other any property type that has dynamic cash flows such as casinos, golf, meetings, incentives, conference and exhibitors (MICE) etc, this is hardly sufficient. The true value in a feasibility study is not to gain market data (most of which is readily available in this age) but in obtaining insight, information and recommendations from specialists who have had hands on experience in the industry. In doing so, it is about developing a proposition that is:
- Relevant – Will it still be relevant three years plus from now (ie for new projects allowing time for construction)? Will it still be relevant 20 years from now?
- Focused – What should be the number of rooms and mix? What market positioning and facilities/amenities should be provided to ensure success? Suite mix, number of covers, destination concepts or not? To brand or not to brand?
- Consider the competitive environment – what is the impact of demand generators in the area and how will the hotel integrate with the wider development and destination seamlessly? How can it be leveraged to add value? What does the existing and future competitive landscape look like and what would the impact be on the proposed development?
- Maximises ROI - Even if the motivation is not to make a profit, it is important for the hotel to be self-sufficient to avoid future operating challenges. Does the business model stack up for lending and operating cashflows?
In an increasingly competitive environment, it is vital that hotels stay relevant well into the future, at least taking their fair market share. Preconceived concepts may work in less mature destinations, but as experience has taught us, these have a habit of not remaining relevant, at tremendous cost to the owner over time.
Download Colliers Hotel Insights Q2 2019 report.
Check in with Colliers today to find out how our global network and expertise can help you get the most out of your investments.