Supply glut continues to badger Singapore hospitality sector

Room supply to increase 4.7% to 63.8k rooms.

The hospitality sector continues to be the main drag for Singapore real estate investment trust (REIT)'s growth, as it succumbs to the pressure of the worsening oversupply woes.

According to a report by OCBC Investment Research, the total room stock increase of 6.5% in 2015 hurt the sector's revenue per available room (RevPAR) which saw a -5.3% dip.

YoY growth in hotel RevPAR ranged from between -2.1% to -9.2% in 2Q16.

The said increase also manifested a decline in average room rates (ARR) by 4.8% and average occupancy rates (AOR) by 0.5%.

"Going forward, we believe the room supply injection will not be adequately matched by a growth in demand," the report said.

With this, the room supply is expected to increase for another 4.7% to 63.8k rooms this year. And despite of the healthy start of 4.5% in visitor days at the start of the year, the report said the demand would remain weak.

"Even though visitor days has shown a healthy start, the outlook for corporate demand remains weak, especially for corporates in the Oil & Gas and Financial sectors. As such, we expect this supply overhang to worsen this year, contributing to downward pressures on RevPAR," OCBC explained.

The report noted that only OUE Hospitality Trust (OUEHT) remained resilient despite its Mandarin Orchard posting a 8.3% drop in RevPAR for the previous quarter.

"Other REITs continue to cite poor corporate demand, which contributed to low to mid single-digit drops in their average room rates (ARR) and average occupancy rates (AOR)," it added.

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