Brands have grown faster in
the Asia Pacific region than anywhere else around the world in the past 10
years, and the reasons are fairly obvious.
“All
the major hotel groups see the potential and the exponential growth. They are
finding more owners. There are more brands in this region, and they want to
grow faster and faster,” said Jesper Palmqvist, senior director – Asia Pacific
for STR. “They are focusing more on this region. The consumers like it too
because it’s a more connected world."
But
if there’s one thing that causes concern for Palmqvist about the region’s
future, it’s the gap between expectations and reality.
He
said at the Hotel Investment Conference Asia Pacific in Singapore last week that right now, the hotel business is looking good for the Asia Pacific
region as revenue growth has stayed ahead of cost growth. But Palmqvist said that relationships between owners and operators are arguably more important
than ever. Because as profitability has grown in 2023, it has only enhanced
expectations for 2024 and beyond.
“I’ve
heard now for three or four months, owners that we talked to might say, ‘Next
year is going to be really good.’ But looking at what’s happening now, next
year is not going to be this year,” Palmqvist said.
Like the rest of the world, the Asia Pacific hotel sector saw rapid growth in the first half of 2023, which has tapered off in the third quarter.
Hotel Investment Today further talked to Palmqvist about Asia Pacific growth, China outbound and the
‘brandification’ of hotels in the region. So
what are operators telling him?
“On
the actual demand generation and costs, they’ve now recently learned that
their balance sheet is so different than what it used to be, in terms of the
cost and revenue balance,” Palmqvist said. “It also depends on the owner.
Remember, we have a lot of new owners in Asia Pacific who have gone from a
different asset class and into hotels… And they come in and say, ‘We like
hotels. We’re invested in it. We see great growth next year.’”
They will be incredibly surprised when they go back to China, that the largest nation in the world is shifting to cashless and is modern, clean and logistically amazing with cool brands.
Jesper Palmqvist
Palmqvist also said that’s where operators have to interject what they are really
seeing and what they are projecting for 2024 and beyond. He added that this kind of
communication is not a bad thing.
“You
could argue that’s an opportunity,” he said. “We know that some brand-owner
relationships are better than they’ve been in the past.”
When will China come back?
The
real uncertainty for future growth surrounds when China's outbound will return. Palmqvist said there are a lot of tea leaves being read in terms of future flight data,
but no one knows for sure. When you add factors like the inability of most
of the world to fly in Russian airspace or limited flight capacity, there is
plenty of room for that uncertainty.
No
matter the reason, the growth of China outbound is coming much slower than
anyone anticipated.
“Airlines
are blaming governments. Governments are blaming someone else. It’s a
circle. That’s why every month people say, ‘Oh look, some growth,’ but the
growth is so slow. I never anticipated this slow of a speed,” Palmqvist
said.
The
upside to that, according to Palmqvist, is hotels and destinations lacking staff are not suffering as much as they would have if all of China came back quickly.
The Philippines and Malaysia don’t have a lot of international brands. It’s mostly domestic… People are going, but not everyone. It’s not for everyone. You need to have good relationships, and the owner is king in this [area].
Jesper Palmqvist
Palmqvist also said whenever the inbound and outbound travel for China gets rolling again,
people who haven’t been to China in a few years are in for a big surprise.
“I
think they will be incredibly surprised when they go back to China, that the
largest nation in the world is shifting to cashless and is modern, clean and
logistically amazing with cool brands,” he said.
Breaking down Asia Pacific growth
Palmqvist
said there are some variations in the demand recovery post-COVID, with bright
spots like Singapore, Indonesia, Malaysia and Thailand.
There are places where
demand is lacking, predominantly in Southeast Asia in places like Vietnam,
Cambodia and Myanmar, with the Philippines somewhere in the middle. Palmqvist
notes that coming out of COVID, there’s been a “cleansing” in the last year,
but the recovery has been harder for the markets that didn’t have stability
before the pandemic. But, he said, even in those regions, there is reason for
optimism in 2024.
Palmqvist
said there have been increased conversations around the future effects of
“hyper-rising” rates for some brands. That’s especially been the case in China
as brands continue to grow in these countries, but he said many price increases
have been justified and have created a more agile industry.
He
said, broadly speaking, Asia Pacific has been having ADR growth over the past
few years, but that growth is more moderate because some markets are holding it
back from a more explosive rate of growth seen in other regions.
‘Brandification’ of the region
In
the past 10 years, the supply of branded rooms in the Asia Pacific region has
jumped from 48% to 58%, which is the biggest increase in the world.
While
that’s not as high as the 69% in North America, it’s increasing quickly.
“We
are getting closer to ‘Brandification Nation’ like in North America,” Palmqvist
said.
He
said there are still a lot of markets with higher growth ahead of new supply
compared to existing in places like Kuala Lumpur (Malaysia), Phuket and Bangkok
(Thailand), Chengdu (China), Sydney and Melbourne (Australia), Metro Manila
(Philippines) and Hanoi (Vietnam).
And
for markets with hotels in the active pipeline, Vietnam, the Philippines and
Maldives lead the way in terms of percentage of growth versus existing supply.
“Vietnam
is an extremely attractive market, just like the Maldives…. People want to do
business there because they can see long term,” Palmqvist said. “The
Philippines and Malaysia don’t have a lot of international brands. It’s mostly
domestic… People are going, but not everyone. It’s not for everyone. You need
to have good relationships, and the owner is king in this [area].”
While it’s later than other regions around the world, upper midscale brands are
now the biggest segment of the pipeline (31%) for the region. That
development is projected to grow even more dramatically over the next three
years.