Smooth progress: Singapore has embarked swiftly on steps to diversify and strengthen its tourism offerings. Among them is the Singapore Flyer

Last year also witnessed the successful listing of two pure lodging real estate investment trusts (REITs) in Singapore - the Ascott Residence Trust and CDL Hospitality Trust. Given the inherent capricious nature of the tourism/lodging industry, their successful listing and subsequent market performance signalled investors' confidence in the hospitality industry.

With economic and tourism prospects expected to stay robust, hotels in Singapore and Asia can expect to enjoy further growth in 2007.

Intense rivalry

Singapore welcomed a record 9.7 million international visitors in 2006 and the Singapore Tourism Board (STB) is working towards a new high of 10.2 million visitors this year and ultimately 17 million arrivals by 2015.

To achieve the targets, Singapore has to keep its tourism and hospitality industries competitive. Its efforts to revamp the tourism sector are essential in the light of the intense rivalry in the region: Hong Kong launched Disneyland in 2005; Beijing will host the Summer Olympics in 2008; Shanghai and Delhi will respectively host the World Expo and Commonwealth Games in 2010, while Macau is transforming into Asia's very own Las Vegas complete with integrated casino/entertainment facilities and world-class hotels.

Many markets, including Hong Kong, Macau, Shanghai and Bangkok, are also competing with Singapore for the lucrative MICE (meetings, incentives, conventions and exhibitions) business. Additionally, emerging markets like Vietnam, Cambodia and India are fast becoming choice tourist destinations.

Singapore has embarked swiftly on steps to diversify and strengthen its tourism offerings. The two upcoming integrated resorts with gaming elements - Marina Bay Sands will provide world-class MICE facilities, while Resorts World Sentosa will feature a Universal Studios theme park - cater to distinct yet complementary clientele.

The construction of the Singapore Flyer and the remake of Sentosa are also progressing smoothly. The iconic VivoCity, with an eclectic mix of retail, entertainment and lifestyle concepts, including St James Power Station, as well as the revitalised Clarke Quay, has injected greater vibrancy into the local leisure scene.

For the first time, Singapore may also host the Formula 1 Grand Prix in 2008, the third-most watched sporting event in the world after the Olympics and World Cup.

With travel becoming more accessible due to the growing popularity of low-cost carriers (LCCs), Singapore responded with its first budget terminal in 2006. The move is in line with the government's strategy to strengthen Singapore's position as an aviation hub and regional epicentre for the low cost airline network.

In anticipation of an expanding and more diversified tourist profile, the government has released more hotel sites for development to supplement the existing hotel stock. Five land parcels were sold in 2006 under the Government Land Sales programme, with another eight hotel sites being placed on the reserve list for the first half of 2007 and at least another three more confirmed sites that include a hotel component.

While the cost of travelling is decreasing, room rates are increasing which is likely to result in higher demand growth in the mid-scale hotel segment.

Higher hotel rates

Strong demand in the wake of limited supply has allowed hoteliers to raise rates in 2006 by an average 20 per cent on the year, sometimes at the expense of occupancy levels. Market conditions are expected to remain robust and when considered in combination with the limited new supply, average daily rates (ADR) has the potential to increase a further 10 to 15 per cent in 2007.

A comparison of ADR across major five-star hotel markets in Asia showed that Hong Kong remained the rate leader in 2006, achieving an ADR of US$312. At US$148 Singapore's ADR is nearly half of that of Hong Kong. This suggests that there is further upside potential for room rates in Singapore, particularly considering the limited supply of new luxury grade hotels.

Around 14,000 new rooms could be added to the market from 2007 onwards from new projects under construction/proposed (including the two integrated resorts) as well as the announced government hotel sites. The increase in room inventory will be easily absorbed by the additional demand the STB aims to attract - its 17 million visitor arrivals target for 2015 is almost 75 per cent higher than the 9.7 million achieved in 2006. The current stock of around 38,000 hotel rooms is already achieving an average occupancy in excess of 80 per cent, indicating strong underlying market demand. Within 2007, prominent completions include the 299-room St Regis and the 120-room Amara Sanctuary Resort Sentosa.

The Singapore investment market reached a record for hotel transactions during 2006 with eight hotel-related transactions surpassing US$1.2 billion. Investors remain very bullish about hotel investments in Singapore with marketed assets attracting unparalleled interests.

The upturn in hotel trading performance and overwhelmingly positive outlook are driving investor demand. Investors polled in Jones Lang LaSalle Hotels' Hotel Investor Sentiment Survey in December 2006 expressed strong optimism in the short and medium-term hotel trading performance of hotels in Singapore. In fact, investors are most upbeat about Singapore's hotel sector over the next 24 months outside of China and India.

While regional players remain dominant, there is a growing presence of US, European and Middle Eastern investors who are looking to park their funds in Asia. Singapore is an attractive destination given its high market transparency, favourable business and investment environment, sound governance, low barriers to entry and stable political outlook.

While the supply of hotel assets is expected to remain constrained in Singapore as they remain tightly held by local families, there are still opportunities to purchase both existing hotels and government hotel land sites in 2007. The crux is speed and timing as underlying demand for hotel assets/land remains strong. Reflecting their medium- to long-term confidence in Singapore's tourism and hotel industry, hotel assets/land placed in the market for sale in 2006 were quickly snapped up. In total, investors walked away with over $1.5 billion worth of investments in seven hotel-related transactions during 2006/early 2007 - a historic high.

Bright days ahead

Growing indifference towards threats of terrorism and avian flu in Asia, active intra-regional business exchanges, more affordable air travel fuelled by the proliferation of LCCs in Asia, and a generally more affluent population in the region will continue to be key contributing factors towards the sustained tourism growth in Asia, including Singapore. Other demand drivers include China and India's burgeoning outbound travel markets and high-yield travellers from Russia and the Middle East.

In the medium to long term, the diversification of Singapore's tourism and accommodation product offerings will also enhance the industry's sustainability and competitiveness in the region, by providing visitors with an experience that is 'Uniquely Singapore'. - 27 March 2007   SINGAPORE BUSINESS TIMES

The writer is the executive vice-president, Jones Lang LaSalle Hotels