The point of no return: 60,000 hotel rooms expected in 2015

Can the demand keep up with skyrocketing supply?

Hotel investments are booming across the island. Singapore is expected to cross the 60,000 hotel room-mark by the end of 2015, according to a report by Maybank Kim Eng.

This is a notable increase from the 54,962 rooms recorded at the end of 2013. The report further estimates that there will be more than 65,000 hotel rooms in Singapore by 2018.

According to Maybank Kim Eng, "Hotel sites continue to enjoy strong bids and prices have continued to rise, particularly for mixed-use projects. As of end-2013, Singapore had 373 hotels, offering 54,962 rooms. We expect Singapore to cross the 60,000 room-mark by 2015E. Hotel capital are values expected to stay resilient. In view of the abovementioned positive factors, we expect hotel capital values to stay resilient in the near term, and are pricing in a conservative 0% price change in 2014E.”

Here’s more from the report:

Robust transactions suggest strong underlying strength. According to CBRE, the investment market for Singapore hotels remains strong.

Sales of Singapore hotels in 2013 amounted to a record ~SGD3.7b. The initial yields have been in the 4-5% range, and prices per room have reached new highs with the Grand Park Orchard and the Westin hotel both achieving around SGD1.5m/room.

Buyers, which previously were made up mostly of domestic interest, now include those from Japan and China. Singapore remains one of the most sought-after markets for hotel investments in Asia.

Singapore received some 15.5m visitors (+7.2%) in 2013, drawing in tourism receipts of SGD23.5b (+1.6%), of which accommodation expenditure rose 5% to SGD5.3b. Visitor arrivals data is a good proxy for room demand given the strong correlation of over 90% between tourist arrivals and tourism receipts, accommodation, shopping and F&B expenditures.