Singapore rebounds but investment lags: CBRE

Singapore’s hotel performance has been robust, driven by a steady flow of international arrivals, the return of mainland Chinese tourists (only 22% below 2019 arrivals in May) and a packed calendar of events, including six Taylor Swift concerts, according to new CBRE research. Singapore registered the highest year-to-date occupancy levels in Asia Pacific as of April 2024. Occupancy surpassed 83.8% in March, slightly below the 84.3% observed during the same month of 2019.

Singapore posted its highest ever ADR and RevPAR for the month of March, and while occupancy remains slightly down relative to 2019, it registered the highest occupancy levels in Asia Pacific as of April 2024 y-t-d.

International visitor arrivals to Singapore are expected to reach around 15 to 16 million in 2024, generating approximately SGD 27.5 billion in tourism receipts. Visitors are spending more time in Singapore compared to before the pandemic, with the average length of stay in May 2024 reaching approximately 3.7 days, compared to 3.4 days for the same period of 2019.

Looking ahead, the expectation is that Formula 1, slated to hit Singapore in September 2024, will outperform once again. With the event attracting in excess of 260,000 attendees in 2023, operators are expecting hotel revenues for the month to be somewhat similar to the highs seen last year at SGD492.4 million.

To learn more about development and investment activity in the region, register for HICAP Australia New Zealand, August 28-30, at the Sofitel Sydney Darling Harbour, and HICAP 2024, October 16-18, at the Fairmont Singapore & Swissotel The Stamford.

New supply muted

Investment activity in Singapore still lags historical levels, but CBRE believes private investors will continue to drive acquisitions in 2024, with luxury and upscale assets their primary focus. It said investors will also look to enter the nascent co-living market, which offers prospects for growth amid the significant shortfall in residential completions over the past five years.

New supply is expected to be extremely limited over the medium term, with an estimated 0.6% CAGR of supply growth between 2024-2027.

Total room inventory in Singapore has increased by just 4.6% over the past five years, with the bulk of new supply coming to the market (3,505 rooms) being in the Upscale+ segment.

A large reason for this is the significant increase in construction costs in Singapore, with Turner & Townsend estimating a cumulative 25% increase in construction costs between 2022-2024F, which is the highest mark in the region.

Most new supply due to come to market comprises Upscale and Upper Upscale developments. With a lack of new hotel stock coming to market, Singapore will continue to see owners and operators reposition their assets through either rebranding, with a preference for lifestyle brands, or redevelopment into co-living or serviced residences.

CBRE said investment transactions remain muted as the prospect of higher for longer interest rates endure.

While investment for pure hotel assets remains robust, investors continue to seek opportunities that they can extract value at the asset level, such as rebranding, refurbishments and change of use.

Singapore measures as the market with the best supply/demand dynamics across Asia Pacific, with deep liquidity still evident, according to CBRE. The current elevated interest rates continue to slow transaction activity. However, buyer-seller expectations are narrowing.

Lastly, CBRE forecasts swap rates in Singapore to fall by ~50bps in 2024, with the first interest rate cuts to occur subsequently after the first U.S. rate cut in the latter half of the year.

Across Asia Pac

More broadly across Asia Pacific, structural change continues, according to CBRE, with owners and operators fine-tuning operational and branding strategies. Increasing labor and utility costs, limited new supply and the prolonged peak of the interest rate cycle are among the driving factors.

Major global hotel operators are expanding rapidly across Asia Pacific, with almost half of the new hotels in the development pipeline being developed in conjunction with five hotel groups, including Marriott, Accor, IHG, Hilton, and Wyndham. These operators continue to invest in loyalty programs and niche segments to capture market share while significantly expanding their technological capabilities.

Key trends: increased emphasis on lifestyle brands; high daily rates due limited supply growth, elevated demand and rising labor costs; investor preference for upscale+ assets with rebranding opportunities; and hotels with strong ESG initiatives are set to outperform.