Press Release: Additional Hotel Supply – A Double Edged Sword

Press Release: Additional Hotel Supply – A Double Edged Sword

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Bangkok – 4 March 2009 – Over 23,000 four and five star hotel rooms are expected to be completed in Bangkok, Singapore, Hanoi, Ho Chi Minh and Kuala Lumpur by the end of 2012, according to a new report published by CBRE Hotels.

“The nature of demand for hotels is notoriously volatile, with factors impacting demand as varied as they are unpredictable,” said Mr. Robert McIntosh, Executive Director, CBRE Hotels Asia. “Conversely, forecasting market supply is somewhat easier, despite some uncertainty in construction timeframes.”

He believes that a greater choice of options tends to lead to an increase in demand for hotel rooms. “The result is an increase in total tourism expenditure compared to the position if the supply had remained static. This has positive implications for employment, demand for airline seats and expenditure in restaurants and other tourism attractions. However, extra supply does have a negative impact on the performance of existing hotels as occupancy levels and room rates tend to fall leading to decreased profitability.”

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The graph below shows the percentage changes in supply for each city on an annual basis. The total percentage increases are shown below.

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The actual number of rooms to be added is greatest in Singapore. Although the increase in Hanoi is high in percentage terms it is not substantial in terms of the total number of rooms as indicated in the graph below.

Singapore will experience the largest number of addition hotel rooms of the five cities, with nearly 10,000 four and five star rooms expected to open by the end of 2012. Assuming all projects proceed, this represents a 39 percent increase in supply over a relatively short period of time.

Hotel supply in Bangkok is expected to increase significantly, with over 6,000 four and five star hotels rooms set to enter the market by the end of 2012. This represents an increase of 26 percent bringing the total supply of four and five star hotels in the city to over 31,000 rooms.

“We believe three-star hotels in Bangkok will benefit from cost-cutting measures being employed by both businesses and individual travelers this year,” according to Mr. Nabeel Hussain, Manager of CBRE Research in Thailand. “Branded budget hotels, such as the Ibis and All Seasons chains, are well-positioned to take advantage of this trend.”

In Vietnam, the existing supply of four and five star hotels in key cities is relatively small compared to other markets. In Hanoi, new four and five star hotel supply is expected to total nearly 3,000 rooms representing an increase of 75 percent. Whilst this appears high, the market is growing from a relatively small base of just under 4,000 rooms (Singapore and Bangkok have over 30,000 four and five star rooms each). In Ho Chi Minh City, existing supply of four and five star hotel rooms is expected to increase by 38 percent to reach a total supply of over 7,000 rooms by the end of 2012.

The addition of new supply to these cities is essential in promoting further development of the tourism industry and to ensure capacity exists to accommodate future growth of visitor arrivals. This is particularly important in Ho Chi Minh City which currently suffers from a shortage of supply.

Finally, the hotel market in Kuala Lumpur will experience a modest increase in hotel rooms to the end of 2012, with the market set to increase by just ten percent to reach 20,400 hotel rooms. While average room rates and occupancy levels are less than those in Singapore, the relatively small increase in supply is unlikely to pose a significant challenge to the market in the next couple of years but it should help boost total tourism revenues.

The extent to which the additional supply will affect hotel performance will vary from market to market. “While additional supply combined with the current economic climate will likely lead to weaker occupancy levels in most markets in the short term, the increase in capacity will benefit some markets in the long term,” Mr. McIntosh said.

About CB Richard Ellis

CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2008 revenue). The Company has more than 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis has been named a BusinessWeek 50 ‘best in class’ company and Fortune 100 fastest growing company two years in a row.

CB Richard Ellis established an office in Bangkok in 1988, followed by Phuket office in 2004, and Samui office in 2007. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering strategic advice and execution for sales and leasing for all types of property, property and facilities management, valuation and advisory, and research and consulting. For more information, visit the company’s website at www.cbre.co.th.