HotelsReport: Strong recovery prospects but mid-market players have to rethink business models amid Covid challenges.

What's the future of Singapore's mid-market hotels?

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Hotel owners should consider converting hotels into co-living or student accommodation (lobby of Ibis Bencoolen Singapore pictured).
Hotel owners should consider converting hotels into co-living or student accommodation (lobby of Ibis Bencoolen Singapore pictured). Photo Credit: Accor

Covid has upended the hotel industry worldwide, and in Singapore the mid-market segment is “being forced” to consider reimagined business models, guest amenities and experiences, as well as space usage, according to a recent report by JLL Hotels & Hospitality Group (JLL).

The report, Reimagining Singapore’s Mid-Market Hotels, attributed this need for hotel owners to reconceptualise to challenges presented by Covid and evolving consumer trends and lifestyle choices.

On a positive note, JLL said this segment has strong recovery prospects post-Covid and is poised to lead recovery in the hospitality sector. This is due to limited new supply coming onto the market in the near-term and a massive growing middle-income population in Southeast Asia.

However, the global real estate services firm stressed owners must adapt platforms to meet changing traveller demands and exercise flexibility to differentiate offerings amidst an increasingly crowded hotel market.

“Covid-19 has raised existential questions about the future of the mid-market hotel space, both in Singapore and across the globe. Increasingly, we will see social and economic implications framing the business model of this sector within Singapore’s hospitality scene. This will force the mid-market segment to reimagine their assets, their definition of flexibility and determine the urgency to adapt,” said Adam Bury, JLL executive vice president, investment sales, Asia Pacific.

According to data from JLL, the past decade since 2010 had been good to mid-market hotels as they have seen substantial growth, with current stock accounting for 51% of the total hotel supply in the city-state

Room revenues have closely correlated with new supply, with the mid-market sectors showing encouraging revenue per available room (RevPAR) growth from 2016 through to 2019 as the market absorbed the new supply.

It was anticipated that this growth would continue into 2020 with supply remaining limited and outpaced by the growth in arrivals to the country, but then Covid hit and derailed this growth.

Analysis by the company revealed that between 2010 and 2019 the sector consistently posted high occupancy rates of over 80%. However, the rates dropped by over 13% and RevPAR declined by approximately 49% in the first nine months of 2020, year-on-year, due to the impact of Covid-19 and despite government driven demand.

Despite strong recovery prospect for the mid-market segment post-Covid it would still be a highly competitive environment, said Bury. “Smaller independent players cannot sit still, and competing on rates is not a viable solution, with the wider guest offering seen as the major differentiator going forward.”

JLL thus recommends hotel owners to consider reimagined strategies and offerings to maximise revenues and returns. Among the recommendations:

• Reimagine offerings in a post-Covid world: Hotel owners should ensure all efforts are made to be Covid-ready and meet changing traveller demands. With 87% of Asia Pacific consumers expecting to make changes to the way they travel and many evolving the way they live and work, hoteliers must constantly strive to be at the forefront of demand trends. Owners are encouraged to invest in safety measures and procedures at properties, enhance cleaning and hygiene standards, and improve booking channels to reflect tailored requests from guests.

• Getting flexible: Hotel owners should also consider alternative uses such as converting hotels into co-living or student accommodation as demand for residential leasing and student accommodation increases, potentially providing a more stable cash flow to owners. Even if a full conversion may not occur, offering a more flexible product may support income during the recovery cycle.

• Invest now: If owners want to maintain their hotel business model then this is an opportune time to invest in the property. Asset enhancement can be achieved through strategic capex allocation to make refurbishments to the property. In some cases this may be considered defensive capex whereby the intention is to stay competitive – particularly in heritage properties, but possibly across the sector, there has been an identifiable trend of capex initiatives being used to significantly reposition the hotel, materially increase ADR and thereby increasing gross revenues.

This story was first published in Web in Travel.

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