Collier Yangon Hotel H1 2016 Review

Correction in ADR observed amid rising competition

The hotel market in Yangon is currently in a state of rapid transition with supply rising to unprecedented levels. Colliers expects competition to further build up, and the correction in ADRs to be more pronounced in the near to medium term.

Forecast at a glance

 

  • Demand – Demand prospects appear healthy with foreign arrival levels still moving on a rising trend. Further reductions in ADRs amid the increasing stock should help buoy the overall demand moving forward.
  • Supply – Future supply of sizeable developments remain geared towards the upper-end hotel segment. Yangon anticipates approximately 900 new keys annually on average, in the span of four years.
  • Occupancy rate – The average occupancy rate for upper-scale hotels dropped to a new record low of 42% in Q2 2016, down by 1.7% YoY. Colliers predicts the rate to further decline between 8 and 10% by Q2 2017 following the addition of sizeable new supply.
  • Average Daily Rate – The average daily rates for both upper-scale and mid-tier hotels declined considerably by 22 and 30%, respectively. The strong supply pipeline suggests a more competitive playing field – likely to pressure most hotels to further reduce daily rates.

Market remains geared towards the saturated upper-end hotel segment

Yangon, the country’s main commercial and transit hub, currently represents more than one-third of the hotel supply. However, the market remains skewed towards the upper-scale and the economy segment, with limited presence of good quality mid-tier hotels.

In fact, at the end of H1 2016, the city’s upper-scale hotel room-stock further increased to more than 4,300 keys following the completion of Melia Hotel in Bahan Township, while an additional 477 keys are anticipated for the remainder of the year. The average annual stock has grown substantially since 2014 and is heading for an upsurge with close to 900 new keys annually in the span of four years.

yangon upper-scale stock

Slated to open in the near term are sizeable developments namely; Daewoo Amara Hotel, Centre Point Grand Hotel, Sheraton Yangon Hotel, Wyndham Hotel and Pan Pacific Hotel. Overall, the market remains strongly geared towards the upper-end segment – a pressing concern given the lowering occupancy levels in view of the increasing supply.

The last past two years witnessed a downward-sloping occupancy driving most upper-scale hotels to cut down daily rates. In Q2 2016, the citywide average daily rate dropped significantly by 22% YoY to USD 119.

Colliers predicts the rate to further decline between 8 and 10% by Q2 2017 amid the expected sizeable additional stock, and the heightening competition from lower grade mid-tier hotels.

upper scale hotel average daily rate

 

Market indicators suggest incentives to build better-quality mid-tier hotels

The increasing foreign arrival levels continues to bode well for the industry. Data from the Ministry of Hotel and Tourism reveals that more than 1.3 million tourists (excluding border entry arrivals) visited the country in 2015, up by 15% YoY. Asia remains the top market source representing 72% of the total, followed by Europe (16%), and America (7%). Key markets are Thailand, Japan and China.

Both Thailand and China have seen a growing number of middle income travellers over recent years. Meanwhile, Colliers presumes that many Japanese traveling to Myanmar, especially Yangon, are predominantly on business visits.

Overall, Yangon has high potential to tap these markets; however, the relevant hotel product seems unsuited. Most mid-tier hotels in the city fall short of international standards and or require major refurbishments. The building and interior designs are outdated and the offerings remain limited.

Nonetheless, the preference for mid-grade hotels appears inevitable as many of the leisure and frequently visiting business travelers veer away from the highly priced upper-scale hotel. From the 50 mid-tier hotels tracked by Colliers, the occupancy was generally stable year-on-year to end at an average of 77% in Q2 2016. The considerable drop in average daily rate, by 30% to about USD 70, has in fact helped buoy the overall occupancy.

 

Yangon mid-scale hotel average daily rate

Moving forward, a strong supply pipeline of mid-tier hotels is also likely to exert downward pressure on occupancy levels. With an increasingly competitive playing field, developments should further differentiate and expand offerings complying to international standards. For instance, hotels that are managed by hotel management companies are a key value addition reinforcing the project’s marketability. At present, economy to mid-scale brands such as Best Western have already expanded their footprint in Yangon, and will soon be followed by Ibis Styles with its first foray in the country. Other mid to upper mid-scale brands that will likely perform well in the market are the likes of Mercure, Microtel and Holiday Inn, to name a few.

To an extent, the upper-scale hotels are likely to continue to face further headwinds. The country’s long neglected hotel and tourism market remains at a nascent stage, which requires extensive government and private initiatives to entice large numbers of luxury travelers. Besides the need for aggressive tourism campaigns, tackling the poor infrastructure condition is vital in the process. Hospitality skills also require further improvements on top of the lack of high-end amenities, facilities and excursions most sought after by high net worth travellers – such as river cruises, golfing activities, and luxury shopping. In the meantime, most upper-scale hotels may be forced to further lower ADRs as an attempt to regain market share away from the mid-tier hotels.

Source:

Colliers International | Myanmar

Room No. B 803, 8/F., Tower B,

Myawaddy Bank Luxury Complex,

No. 151, War Dan Street, corner of

Bogyoke Aung San Road,

Lanmadaw Township, Yangon,

Myanmar

 

 

For more information:

Karlo Pobre

Senior Manager | Research & Advisory

+95 (0) 979 573 3378

Karlo.pobre@colliers.com

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