Singapore’s Mid-Market Hotels Poised to Lead Recovery

Singapore’s mid-market hotel industry is being forced to consider reimagined business models, guest amenities and experiences, as well as space usage due to challenges presented by COVID19 and evolving consumer trends and lifestyle choices.

According to JLL Hotels & Hospitality Group, Singapore’s mid-market segment has strong recovery prospects post-COVID, but owners must adapt platforms to meet changing traveller demands and exercise flexibility to differentiate offerings amidst an increasingly crowded hotel market.

“COVID19 has raised existential questions about the future of the mid-market hotel space, both in Singapore and across the globe. Increasingly, we will see social and economic implications framing the business model of this sector within Singapore’s hospitality scene. This will force the mid-market segment to reimagine their assets, their definition of flexibility and determine the urgency to adapt,” said Adam Bury, Executive Vice President, Investment Sales, Asia Pacific, JLL Hotels & Hospitality Group.

Singapore’s mid-market hotel industry has experienced rapid growth since 2010. The mid-market hotel segment has grown substantially over the past decade, with current stock accounting for 51% of the total hotel supply in Singapore.

Room revenues have closely correlated with new supply, with mid-market sectors in Singapore showing encouraging RevPAR growth from 2016 through to 2019 as the market absorbed the new supply.

Pre-COVID, it was anticipated that this performance growth would continue into 2020 with supply remaining limited and outpaced by the growth in arrivals to the country.

Between 2010 and 2019, the sector consistently posted high occupancy rates of over 80%. However, occupancy rates dropped by over 13% and RevPAR declined by approximately 49% in the first nine months of 2020, year-on-year, due to the impact of COVID19 and despite government driven demand.

With limited new supply coming onto the market in the near-term and a massive growing middle-income population in the surrounding ASEAN region, JLL believes the mid-market segment is poised to lead recovery in the hospitality sector.

JLL recommends the following:

- Hotel owners ensure that all efforts are being made to be COVID-ready and meet changing traveller demands. With 87% of Asia Pacific consumers expecting to make changes to the way they travel and many evolving the way they live and work, hoteliers must constantly strive to be at the forefront of demand trends. Owners are encouraged to invest in safety measures and procedures at properties, enhance cleaning and hygiene standards, and improve booking channels to reflect tailored requests from guests.

- If owners want to maintain their hotel business model, then this is an opportune time to invest in the property. Asset enhancement can be achieved through strategic capex allocation to make refurbishments to the property. In some cases, this may be considered defensive capex whereby the intention is to stay competitive – particularly in heritage properties, but possibly across the sector, there has been an identifiable trend of capex initiatives being used to significantly reposition the hotel, materially increase ADR and thereby increasing gross revenues.

- Hotel owners should also consider alternative uses, such as converting hotels into co-living or student accommodation assets, as demand for residential leasing and student accommodation increases, potentially providing a more stable cash flow to owners. Even if a full conversion may not occur, offering a more flexible product may support income during the recovery cycle.

“The mid-market segment has strong recovery prospects post-COVID, but regardless it will be a highly competitive environment. Smaller independent players cannot sit still, and competing on rates is not a viable solution, with the wider guest offering seen as the major differentiator going forward,” said Bury.

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