Too Many Rooms Creates Buyers Market In Singapore

<I>Singapore</I> - In contrast with economic trends in other world-class cities, the hotel industry here is fast becoming a buyer's market as room inventory grows faster than arrival numbers. The excess inventory is the result of travel promotion and hotel construction programs that have slipped out of sync with arrival numbers.

Whether or not a price war will erupt is still under debate, but outright optimism on the part of hoteliers is in short supply as they aggressively court the corporate market to compensate for slow growth on the leisure side.

"Business travelers are demanding more benefits to get the best value for their money," said Erena Chan, director of marketing for the Shangri-La Hotel Singapore. "The overabundant room supply and tapering of the leisure market will continue to fuel fierce competition for the business travel market. We expect the price war to intensify as more hotels come on stream."

The excess inventory has been caused by an unexpected drop in leisure arrivals. Leisure increases have been declining for five years, hitting 2.2 percent in 1996, compared with Singapore Tourist Promotion Board estimates of 3 to 5 percent. At the same time, room inventory jumped more than 9 percent in 1996, reflecting hotel construction approvals granted during more optimistic years early in the decade.

Hotel openings last year, including the Ritz-Carlton Millennia, Conrad International and Grand Plaza, boosted the room count to 29,836. The Merchant Court, opening in April, and other new properties will boost the count to at least 30,953 by the end of 1997.

But Charles Leong, senior vice president for the Singapore Tourist Promotion Board in Los Angeles, said hoteliers were not hurting. "An oversupply? I don't think so," he said. "These guys are still running in the low 80s."

But business analysts in Singapore are predicting a downturn in hotel earnings for the next several years.

Hotel projects already under way could boost inventory by 8.2 percent annually through 2000, a period when arrivals--at least on the leisure side--are not expected to pick up significantly. Corporate numbers are up in the air pending events in Hong Kong.

Leong Chi Meng, an analyst with Vickers Ballas, a Singapore real estate consultancy, warned that overall occupancy could dip below 80 percent, down from 81 percent in 1996 and 83 percent in 1995.

Competition Intensifies

For now, discounting already has started. The Ritz-Carlton proudly proclaimed that it was Singapore's rate leader when a year ago it opened at Marina Centre, near the main convention center.

"We were very competitive with our rates, especially for our preferred customers," said Mark Ferland, corporate director of transient sales. "But Singapore has become much more competitive."

The story was similar for the Conrad International, which opened across the street from Ritz-Carlton in November. General manager Willy Optekamp opened with a 45 percent discount off the hotel's published rates, which hit older properties in the area particularly hard.

The biggest losers were the Pan Pacific, Marina Mandarin and Oriental Singapore, all in Marina Square, the area's original hotel and retail complex.

For now, however, the battle is being fought on the value-added front. "We're having great success in obtaining added amenities," said Susie Mckernan, general manager of international hotel programs for Rosenbluth International Travel. "Properties are very amenable to negotiating."

Complimentary breakfast, waived telephone access charges, guaranteed upgrades rather than space available, and business-plan rooms are the most common additions, she said.

Ritz-Carlton's Ferland agreed that travel managers want competitive rates, but aren't being overly aggressive on price. Hotels, on the other hand, aggressively are courting travel managers to make up the slack in leisure arrivals. Rosenbluth had a record 36 to 40 qualified hotel bids for its 1997 preferred supplier program and signed just 18 contracts.

Ferland said Ritz-Carlton has seen a 25 to 35 percent increase in its top transient accounts in Singapore since the property opened, a jump he credited to an intensive marketing campaign directed at the company's existing client base.

Traders Hotel Singapore, Shangri-La's business-oriented property, is sharpening its marketing program as well and concentrating on the value theme, said marketing director Rick St. Maurice. With corporate rates just $25 to $65 below those of five-star properties, he's mining every bit of data available to maintain Traders' current 89 percent occupancy rate.

Other properties are eyeing Traders' success: The Novotel Orchid Singapore just finished a $7.5 million renovation to support plans to boost corporate business to 70 percent of its total. Pan Pacific wants to boost its corporate mix from the current 15 percent to at least 25 percent of its total book of business by the end of 1997.

In most cities, falling occupancies and growing competition would mean a price war in the very near future. Whether or not that happens in Singapore depends at least as much on events in Hong Kong as on pricing decisions made in Singapore.

One reason so many properties are pinning their hopes on business travelers is the healthy growth in business arrivals to Singapore over the past two years. A growing stream of Hong Kong and multinational firms are opening new offices in Singapore, automatically boosting corporate arrivals.

Many of those new migrations are driven by fears of what could happen in Hong Kong after it reverts to China on July 1, said Rosenbluth's Mckernan.

If China cracks down economically or politically, the trickle of companies leaving Hong Kong for Singapore could become a flood, she said. If business continues as usual in Hong Kong after the handover, business travel to Singapore is likely to hold steady or even decline slightly, adding to pressure on hotel occupancies.

Despite increased competition, buyers should take heed that not all is doom and gloom in the hotel boardrooms. A number of hotels have planned modest rate increases. The Hotel Inter-Continental is looking for a 7 percent increase in overall revenues. The Singapore Marriott will settle for a 6 percent boost in revenues, based on a rate increase of 3 to 7 percent. Traders also is looking for a small rate increase despite its healthy occupancy.