Hotels – Key Investments for Developer & Investors
Year 2018 had been a cake walk for the hospitality industry in Singapore with 87% average occupancy rates and 4% hike in RevPAR.
Thanks to the continuous initiatives of the STB (Singapore Tourism Board), the MICE (Meetings, Incentive Travel, Conventions and Exhibitions) Industry, the Crazy Rich Asians that introduced luxurious hotels of the island to the West and the innumerable favorable reasons that offered a new leash of life.
Promptly vitalizing the property market in turn, investments and developments in hotel assets have experienced strong growth, making a catwalk into 2019.
The latest stir in the market is ibis Singapore Novena Hotel of Alpha Investments Partners (Alpha).
In 2013, Alpha acquired the three star, eight-storey ibis from Kum family at S$150 million.
Earlier, the Kums had acquired it at S$118 million in 2011. After a series of asset enhancement initiatives, the 241 guest rooms were upgraded and transformed to increase productivity and performance.
With excellent user reviews, they are up for sale at a price tag of S$240 million, at the time of the year when the hospitality industry is ruling the roost in real estate market.
Alpha was also known to put up 78 Shenton Way for sale last year, when transaction of commercial properties dominated the market.
Another Group in close follow up with the resurgence in hotel industry is the Worldwide Hotels, which is capitalizing the trend, leading the market through two of its classic acquisitions.
This month, it has won the Government Land Sales (GLS) tender of an exclusive Club Street hotel site in CBD, again offering the highest ever bid for that category at S$562 million.
The modus operandi in the two acquisitions underline the confidence in the booming hospitality industry and the determination to draw optimal benefit from the upswing.
The Fragrance Group, on a related note, acquired the Waterloo Apartments in En Bloc sale at S$131 million against the asking price of S$115 million in October 2018.
Later in the year, this Group has also sought approval for its commercial property at Hoe Chiang Road – Tower 15 for change of use to hotel.
Hotel development looks quicker and easier when owner operators get into the investment side.
The other astounding transaction of the month is the acquisition of 146 serviced apartments housed in the conserved 1950s heritage structure – Ascott Raffles Place at the heart of CBD by Cheong Sim Lam.
After successful development of International Plaza and Hyatt Regency, the family has acquired this coveted property at S$353.3 million, which is more than 60% of the property’s latest valuation.
The transaction has fetched a net gain of S$134 million for Ascott REIT, the wholly owned subsidiary of CapitaLand.
Another buzz is the billion-dollar potential transaction of Oxley’s Holdings’ maiden hospitality venture, Novotel Singapore on Stevens / Mercure Singapore on Stevens at the Scotts Road and Orchard Road shopping belts with 254 rooms and 518 rooms respectively.
Acquired in 2013 and asset enhancement initiatives completed by 2017, they offer the perfect midscale accommodation for business, entertainment and shopping trips for international and staycation guests.
Property market watchers are enthusiastic about the record high hotel investments and laud the foresight of investors and developers.
Shaun Poh, Executive Director – Capital Markets Team, Cushman & Wakefield, Singapore reports serious investors scouting for hotel assets, encouraged by the progress of hospitality industry.
Their data analysis reveals hotel investment sales of S$1.36 billion in 2018.
Taking their lead in the Hotel/Hospitality Sector, the Company aims to support investors and developers to acquire commercial sites outside the restricted areas with change of use to hotel.
With the current developments in progress, their statistics reports a lean supply of 742 additional rooms per year from 2018 to 2022 as against the surplus of 3,357 rooms supplied from 2014 to 2017.
The solid data offers enough room for investors and developers to vroom into hotel investments.
One of the positive effects of July 2018 cooling measures has been the change of focus from residential properties to other segments, of which hotel investment draws chief interest.
Govinda Singh, Executive Director – Valuation & Advisory, Colliers International appreciates the interests from Institutional Investors, families and HNWIs (High Networth Individuals) towards hotel assets.
However, the families and HNWIs’ scope of investment is below S$ 70 million, mostly attached to freehold properties.
Mr. Singh believes that the present lenient attitude of the Government in allowing conversion of sites to hotel use would add more charm to the market.
Like many owner operators, Junrong Teo, Associate Director – CBRE Hotels finds many more brands ambitious to expand their footprint in lucrative areas of the island.
While such owner operators are equipped with long-established knowledge in the field, he adds that more contemporary methods need to be worked out to ensure success of projects.
Not wanting to miss the opportune moment of the market, one of the leaders in residential segment for over three decades, Hoi Hup Realty, participated in the recent Club Street GLS hotel site tender.
The taste of success in their one and only hotel asset, Courtyard by Marriott Novena finds them involving in hospitality asset tenders in recent times.
It is quite notable that they won the coveted EC site at Tampines 10 this month, though their General Manager, Koon Wai Leong feels residential developments being onerous in the current scenario.
Through great marketing efforts, upgrading the destinations, engaging in the spread of local culture and cuisines, uplifting MICE industry, initiating Smart Hotel Technology Roadmap and similar efforts, the STB and stakeholders have been constantly supporting the arrival of tourists in great numbers.
For business and leisure alike, Singapore has become the top destination of the South East, drawn by its impeccable cleanliness, trustworthiness and swankiness.
The total room revenues touched S$3,667 million with RevPAR at S$189.3 in 2018.
In the previous year, the RevPAR was S$182.2. The increase in revenues has been recorded as 7.5% All the positive figures point to the arrival of international tourists in great numbers along with locals on staycations.
Be it the integrated development with hotel component like the Duos or the exclusive hotel sites of GLS (Government Land Sales) or change of use to hotel, the URA is presently keen to offer opportunities to develop hotels in line with the trend.
The URA acknowledges the increasing international visitors and the demand for more hotel rooms.
In the latest circular that came into effect from August 13, 2018, it has conveyed its interest to consider new development applications on sites that are not zoned for hotel use by evaluating them individually, checking the compatibility with the existing infrastructure and issuing special orders for change of use to hotel.
Accordingly, many En Bloc sites have appealed for change of use to hotel and expect favorable approvals in the coming days.
With passion driven stakeholders in action, more sensational hotel investments are to unfold in 2019.