Hotel revenues hurt by overbuilding, Airbnb

Figures show KL recorded the lowest RevPAR among key Asean cities as of May this year despite the rise in travellers


OVERBUILDING of hotels in Kuala Lumpur (KL) and the shift by foreign travellers to opt for short-rental units offered under Airbnb are hurting hotel operators at the nation’s capital.

Figures showed that KL recorded the lowest revenue per available room (RevPAR) among key Asean cities as of May this year despite the rise in travellers. KL is the fifth most-visited city in the world.

According to data from STR Inc, a US-based company that compiles supply and demand data for sectors including the global hotel industry, KL’s RevPAR for the year-to-date (from Jan 2019 up to May 2019) was down by 9.5%.

But other cities like Hanoi, Manila, Jakarta and Bangkok recorded growth in RevPAR (a performance metric used in the hotel industry) as at May, while Ho Chi Minh was borderline due to the low demand growth.

KL hotels’ occupancy rates for the same period were 6.3% lower, while average daily rates (ADR) were down 3.4%.

For KL’s transient segment, RevPAR as at May 2019 was 8.5% weaker, while ADR and occupancy rates fell 5.2% and 3.4% respectively. Transient travellers include walk-in guests, individuals requiring a short hotel stay and guests with a last-minute booking.

The upscale and upper-midscale classes in KL saw the largest declines in RevPAR growth for the May 2017-May 2019 period, with upscale declining by 12.6% while upper midscale dropped 14.3%.

An industry source said hotel operators and owners are facing the challenge of increasing footfalls to their lobbies.

“There are two main reasons behind the drop in revenues. There are too many hotels which are allowed to be built in KL. Unlike in Singapore, hotels are only allowed to build new branches when they reach a certain occupancy rate. But it is not the case in Malaysia.

“The second reason is the impact of Airbnb accommodations. More foreigners are opting for Airbnb but these units do not carry high overheads like hotels,” said the industry source to The Malaysian Reserve.

Official government figures showed that there were 3,225 hotels offering 254,109 rooms as at March 2019 compared to 1,578 in March 2000.

At the end of last year, there were 3,216 hotels, offering 256,682 rooms. Another 94 hotels and 19,358 rooms are expected to come online.

More hotels are being built in the country despite tourists arrivals have plateaued in recent years. The completion of new hotels has exacerbated the situation especially in KL, forcing hotel operators to slash prices to keep afloat.

Other segments of the country’s property market like commercial towers and malls are also facing dwindling tenants and footfalls.

The rising interest of Airbnb has seen travellers opting for the short-term rental accommodation arrangement instead of traditional hotels, further eroding the income of the capital-intensive hospitality business.

Condominium and apartment owners have rushed to put their units under Airbnb as the property market continues to slump due to overbuilding.

Tourist arrivals to Malaysia have stagnated as the country posted two consecutive years of negative growth in international visitor arrivals (IVAs), according to data from the Ministry of Tourism, Arts and Culture.

IVAs stood at -0.4% and -3% in 2018 and 2017 respectively, compared to a 4% growth in 2016. IVAs were also negative in 2015 at -6.3%, although 2014 and 2013 recorded growth of 6.7% and 2.7% respectively.

Despite the imbalance supply and demand in most parts of the country, only hotels in Langkawi and Penang recorded brisk business.

Hotels in Johor, Selangor and Kota Kinabalu also registered a decline.

The situation is unlikely to improve going forward, given that almost 30,000 rooms will be added in the future in Malaysia, STR said. Twenty-three percent of the incoming supply will be located in KL, while 13% will be in Johor and 12% in Kota Kinabalu.