Hotel room rates here are likely to more than triple to an average $600 by 2015, driven by a shortage of rooms, investment bank Merrill Lynch says

Hotel room rates here are likely to more than triple to an average $600 by 2015, driven by a shortage of rooms, investment bank Merrill Lynch says in a new report.

The investment bank expects hotel occupancy would stay above 90 per cent with revenue per available room (Revpar) reaching $540 by 2015 - $235 more than the latest figure provided by the Singapore Tourism Board.

In April, the latest month for which official data are available, the average room rate was estimated at $192, while Revpar stood at $161.

Merrill Lynch expects the strong demand for rooms to be underpinned by a large increase in the number of visitor arrivals. ‘We expect Singapore to attract 17.7 million visitors by 2015, an increase of 7.0 per cent per year between 2007 and 2015,’ said the report.

‘The main contributors will be from the leisure visitors, new visitors attracted by the integrated resorts, and growth of the business and meetings, incentives, conventions and exhibitions (BTMICE) segments.’

The bank’s prediction is slightly more upbeat than that of the Singapore Tourism Board, which aims to draw 17 million visitors a year to Singapore by 2015. In 2006, the island saw 9.7 million visitors.

With the expected surge of tourists, more hotel rooms will be needed, Merrill Lynch said. ‘In our opinion, the demand for hotel rooms will increase at an average of 4,050 rooms per year between 2007 and 2015, while supply of rooms is forecast to increase at 3,300 rooms per year - resulting in a 19 per cent shortfall per year.’

The bank forecasts that by 2015 demand for hotel rooms will reach 62,100 rooms per day, whereas supply will only be 59,220 rooms - pushing room rates up.

The shortage means that hotel operators will regain pricing power and room rates will begin to rise to meet those of other cities in the region, the report said. As at the end of last year, Singapore’s four- and five-star hotel room rates were 54 pre cent cheaper than Hong Kong’s and 17 per cent cheaper than Shanghai’s.

In its report, Merrill Lynch also picked Singapore-listed stocks that are likely to benefit from the uptrend in hotel room rates, reiterating its ‘buy’ calls on Ascott Residence Trust (ART), CDL Hospitality Trusts and CapitaCommercial Trust (CCT) - citing the stocks’ large exposure to the Singapore hotel market.

‘CDL Hospitality Trusts is the largest hotel owner, by number of rooms, in Singapore and the purest listed play on the Singapore hotel sector,’ the report said. ART, which has 25 per cent portfolio exposure to the Singapore market, was also favoured for its major portfolio exposure outside Singapore, including Vietnam and China.

Merrill Lynch is also upbeat on CCT, which currently generates 18 per cent of gross revenue from its exposure to the Singapore hotel market via its 60 per cent holding in Raffles City Singapore.

‘We believe that the positioning of the Raffles complex is unique by virtue of both its proximity to Marina Bay and the proposed F1 circuit. With the possible integration of the Circle Line MRT and ongoing retail asset enhancement works, we believe that hotel room rates are set to increase in line with, if not above, our forecasts,’ it said.

Source: The Business Times, 23 June 2007