PHUKET HOTELS SURVIVE POLITICAL TURMOIL

Real Estate Press Releases Thursday June 5, 2014 10:16
Bangkok--5 Jun--CBRE

The number of international tourist arrivals to Phuket grew by 6.9% Y-o-Y to 962,953 arrivals in the first quarter of 2014 with an increase in direct international flights to Phuket helping insulate it from any negative impact of the ongoing political turmoil in Bangkok, according to CBRE, the leading international real estate consultant.

The average occupancy of upscale hotels (with rates over THB 2,000 per night) was over 80% in the first quarter of 2014. Hotels in Phuket were also able to increase the overall daily rate by 3.3% Y-o-Y, but this was mainly due to the baht’s depreciation in value against major currencies.

CBRE forecasts that total Phuket hotel supply will increase by 4,000 keys over the next three years, a 25% increase in current supply. CBRE has also observed fewer new construction starts of hotels in Phuket, which means that the rate of new supply will decrease over the next three years.

Despite the political problems, there is a possibility that visitor arrivals to Phuket may increase at a faster rate than new hotel supply, which means that there is a good possibility of room rates rising.

China and Russia were the largest feeder markets with 225,949 and 228,691 arrivals to Phuket airport, respectively. There was a 1.6% Y-o-Y decline in Chinese arrivals, a market that had been growing at 90% per year, while Russian arrivals grew by 20.4% Y-o-Y this quarter. These two key markets constitute about 50% of the total. The other key feeder markets including Sweden, Korea and Australia only account for about 5% each. The data shows the sensitivity of Asian feeder markets to political unrest in Thailand and the lack of concern from Russian tourists regarding the same.

Phuket is, however, becoming a lot more dependent on Chinese and Russian arrivals whereas in the past there was a far greater spread of key feeder markets. The risk is that there could either be an event that prevents people from these markets from travelling, such as an economic downturn, or that their attitude to Thailand as a destination suddenly changes.

Although the Phuket hotel market is surviving, not every grade of hotel is prospering. Hotels are classified into four grades: luxury, first-class, mid-range and economy based on achieved room rate.

REVPAR (revenue per available room) is the combination of room rate and occupancy, and is a measure commonly used to analyse performance. First-class hotels with rates between THB 4,000 - 10,000 per night had the best REVPAR. The positive aspect of this result is that it shows Phuket is not a zero dollar tour destination with tourists being pushed into the cheapest hotels and the tour operators hoping to gain revenue from commissions on shopping and entertainment.

CBRE believes that Phuket will remain one of Asia’s leading tourist destinations. The airport is being expanded which will reduce capacity problems. The dependence on a limited number of feeder markets increases risk but there is still potential for growth. There were about 100 million outbound Chinese tourists last year and only 4.7 million of them came to Thailand.

The challenge for hotel owners is that if a property becomes dominated by one nationality, it tends to drive other nationalities away so the potential growth from key feeder markets needs to be handled carefully. The best revenue will come from quality, not quantity. Therefore, tourism policy makers, hotel developers and operators need to focus on long term profitability for the Phuket hotel market.

For Thailand / regional property news or global stories, follow us onFacebook: CBRE.Thailand and CBRE.Condo.Society / Twitter: @CBREThailand / YouTube: CBREThailand

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