Asia Pacific Hotels & Hospitality Sector Trends 2024

With the Asia Pacific hotel market continuing to undergo structural change, hotel owners and operators are fine-tuning operational and branding strategies. Increased labour and utilities costs, limited new supply, and the prolonged peak of the interest rate cycle are among the driving factors. 

Major global hotel operators are expanding rapidly across the region, with almost half of the new hotels in the development pipeline being developed in conjunction with five hotel groups: Marriott (60,566 rooms), Accor (47,052 rooms), IHG (34,227 rooms), Hilton (31,606 rooms) and Wyndham (21,455 rooms). These operators continue to invest in loyalty programmes and niche segments to capture market share while also significantly expanding their technological capabilities.

Despite prolonged high interest rates globally, hotel investment in Asia Pacific has been resilient, driven by continued interest in Japan and Australia, a record-breaking year for serviced residence sales in mainland China, and a steady flow of deals in a strongly performing Korea market. 

This report explores the key trends impacting the hotel sector in Asia Pacific, including an analysis of the current market landscape, the latest activities of the major operators, asset management and investment trends, and ESG considerations.

Key Trends

Operators keep daily rates elevated as a result of limited supply, elevated demand and rising labour costs: While hotels have successfully adapted to lower levels of applicants and staffing, new labour-related issues present a challenge to owners and operators. With this challenge expected to persist for the rest of 2024, operators will look to keep daily rates high to capture some of these losses on balance sheets.

Major global operators continue to expand aggressively, with increased emphasis on lifestyle brands: With the ‘big 5’ operators expanding their global market share from 20% to 24% over the past six years, the trend is set to continue as the push for greater presence across all segments continues.

A large part of this strategy is the expansion into the lifestyle sector, with the brand loyalty programs, avant-garde design and wellness initiatives driving the demand.

Investment robust despite debt-related headwinds; investors maintain preference for upscale+ branded assets: Amid ongoing capital market dislocation, the upscale+ segment has emerged as the most appealing segment for hotel investors in Asia Pacific. This has been driven by growth in global wealth and travellers’ willingness to spend more on accommodation following the prolonged border closures witnessed during the pandemic.

Adoption of Sustainability / ESG initiatives continues; hotels with strong ESG initiatives set to outperform: The Asia Pacific hotels and hospitality industry’s commitment to ESG initiatives continues to gain momentum. Rising energy costs, which have increased significantly since the onset of the pandemic, along with further commitment to ESG initiatives are set to accelerate the industry’s focus on sustainability. Other supportive factors include a shift in guests’ preferences toward more sustainable tourism, along with growing demand for disclosure around climate risk.

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Source: CBRE

Consumption may further weaken if inflation not addressed

The Philippine government should focus on managing persistent inflation in the coming months to support household spending growth, analysts said.

University of Asia and the Pacific Senior Economist Cid L. Terosa said elevated inflation was the “culprit” for muted consumption seen in the second quarter.

“Consumption will start to pick up towards the last quarter of the year, but it might remain muted if inflationary pressures persist and potential risks manifest,” he said.

The Philippine economy grew by 6.3% in the second quarter as higher construction and investment growth helped offset slower consumption.

Household final consumption expenditure grew by 4.6% in the second quarter, slowing from 5.5% a year ago.

Headline inflation accelerated to 4.4% year on year in July, mainly driven by a spike in electricity rates and food costs. This was the fastest inflation print in nine months.

In the first seven months of the year, headline inflation averaged 3.7%, above the central bank’s 3.3% full-year forecast.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the slowdown in consumer spending could largely be attributed to high inflation.

Increased borrowing costs reduce the purchasing power of consumers, “forcing some of the poorest of the poor and some people from the middle class to save and prioritize basic necessities such as food, shelter, utilities, transport fares, among others,” he said.

The Bangko Sentral ng Pilipinas (BSP) has kept policy rates at a 17-year high of 6.5% since October 2023. From May 2022 to October 2023, the BSP hiked borrowing costs by a total of 450 basis points to tame inflation.

Diwa C. Guinigundo, GlobalSource Partners’ Philippines analyst and former central bank deputy governor, said well-anchored inflation expectations could help provide additional incentives for higher consumption.

In an e-mail, he cited the need to improve households’ access to credit by easing lending standards without compromising standards.

“[Household spending] can be encouraged by ensuring better access by households through a better, more efficient system of the banks in being able to know their customers,” he said.

Emy Ruth Gianan, who teaches economics at the Polytechnic University of the Philippines, said targeted subsidies for various sectors may be needed in the short term to address anemic household spending.

“Note that households are most likely tight on spending because they do not see prices going down any sooner,” she said. “If we give them a signal that they can spend even at a fraction of the cost, then maybe we could boost consumption.”

FOOD INFLATION

Filomeno S. Sta Ana III, coordinator at Action for Economic Reforms, called on the government to come up with a strategic plan to boost agricultural productivity and address rising prices of food, which constitute around 43% of total household expenditures.

“Government’s reduction of food import tariff, particularly rice tariff, provides some alleviation, but is a temporary solution,” he said.

President Ferdinand R. Marcos, Jr. in June signed an executive order which slashed tariffs on rice imports to 15% from 35% previously, until 2028.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the government should focus on addressing the challenges facing the agriculture sector.

“While the economy is on a solid footing, challenges such as the agriculture sector’s continued weakness and potential global economic headwinds require careful management,” he said in a Viber message. “This could indicate challenges in food production or rural economic activities.”

In the second quarter, agriculture and fisheries output contracted by 3.3%, worsening from the 1.2% decline a year earlier, reflecting the impact of El Niño.

Farm damage caused by El Niño reached P15.3 billion, according to the final estimate issued by the Department of Agriculture.

HEALTHCARE COSTS

Meanwhile, Mr. Sta Ana said inadequate social services, especially for healthcare, “make the situation all the more distressing for the population” amid high food prices.

He noted that out-of-pocket expenses for health are equivalent to 46% of total current health expenditures.

“A World Bank figure shows that a previous trend of decreasing out-of-pocket expenses as a percentage of current health expenditure has recently been reversed,” he said.

Aside from healthcare, education is also one of the most expensive items among household expenses.

“To the extent that more public money is made available to expand such public services, the way this is done in other jurisdictions, that would be most helpful to households,” Mr. Guinigundo said.

Ms. Gianan said concerns over the affordability of healthcare and the lack of access to it force households to plan well ahead for future expenses.

“Young people tend to spend more than their elderly counterparts, and spending smooths out throughout the life cycle as people save more for their retirement and other life needs,” she said in an e-mail.

“This is compounded by the fact that we have underdeveloped social services which compels people to really look out for themselves,” she added.

Source: Business World

PHL likely to grow by 6% this year

Philippine gross domestic product (GDP) growth is expected to average 6% this year, at the low end of the government’s 6-7% target, according to analysts. 

Fitch Solutions’ unit BMI lowered its Philippine GDP growth forecast to 6% this year from 6.2% previously, after weaker-than-expected second-quarter data.

“The latest growth outturn clearly showed that we have overestimated the health of the Philippine economy,” it said.

The Philippine Statistics Authority (PSA) last week reported that GDP expanded by 6.3% in the second quarter, quickening from the revised 5.8% in the first quarter and beating the 6% median estimate in a BusinessWorld poll.

BMI had earlier projected 6.5% GDP growth for the second quarter.

For the first half of the year, GDP growth averaged 6%. In order to meet the low end of the government’s 6-7% target, the economy would need to expand by at least 6% in the second semester.

“To reach our previous 6.2% growth projection for 2024, the economy must expand by around 6.4% in the second half, which we think is unlikely,” BMI said.

BMI said that the Philippines’ second-quarter growth print “paints a misleading picture of the economy’s health.”

“Reinforcing our view, the 0.5% quarter-on-quarter expansion recorded was the softest pace since the second quarter of 2023. Much of this weakness stemmed from a poor performance in the external sector, as we had expected,” it said.

On a seasonally adjusted quarter-on-quarter basis, GDP grew by just 0.5%, slower than the 1.1% in the first quarter.

“Indeed, exports contributed just 1.2 percentage points (ppts) to headline growth, halving the strong 2.4-ppt contribution in the prior quarter. Along with a strong pickup in imports, net exports detracted 0.8 ppt from the headline figure,” it added.

PSA data showed that exports of goods and services grew by 4.2% in the second quarter, much slower than the 8.4% growth a quarter ago.

“Against the backdrop of a slowing global economy in the second half, external demand will prove even less supportive over the coming quarters,” it added.

Despite this, BMI noted that domestic demand continues to hold up “pretty well.”

Growth in household consumption slowed to 4.6% from 5.5% a year ago. Private consumption accounts for about three-fourths of the economy.

“Despite a dip in private consumption contribution from 3.4 ppts in the first quarter to 3.2 ppts in the second quarter, the rebound in investment activity more than made up for it,” it said.

Gross capital formation or the investment component of the economy grew by 11.5% in the second quarter, faster than the 0.5% growth in the previous quarter and 0.7% a year ago.

“Contribution from gross fixed capital formation jumped from 0.5 ppt to 2.5 ppts, the highest level in almost two years. We expect imminent rate cuts by the Bangko Sentral ng Pilipinas (BSP) to provide a further lift to domestic activity,” it said.

CITI OUTLOOK

On the other hand, Citigroup, Inc. raised its GDP growth projection to 6% this year from 5.9% previously due to expectations of improving economic conditions.

“While household consumption is likely to only gradually recover, there are supporting factors such as strong employment, as well as the expected lower inflation and interest rates in the coming months,” Citi economist for the Philippines Nalin Chutchotitham said in a report.

Inflation is also seen to continue to ease after the spike in July. “We also agree with the BSP that inflation is projected to decline from August onwards,” it said.

Headline inflation rose to 4.4% in July from 3.7% in June, its fastest pace in nine months.

In the first seven months of the year, headline inflation averaged 3.7%. The BSP expects inflation to average 3.3% this year.

For 2025, Citi sees growth steady at 6%. This would be below the 6.5-7.5% government target.

“We maintain our expectation of 2025 growth at 6%, noting increasing external headwinds from the slowdown in several advanced economies (especially the US), which are the Philippines’ key trading partners and sources of overseas workers’ remittances,” Ms. Chutchotitham said.

EASING TO START

Meanwhile, Citi said that it expects the BSP to commence its easing cycle at its meeting on Thursday.

“We continue to expect a 25-bp rate cut starting at the Aug. 15 policy meeting despite a temporarily high inflation print in July,” Ms. Chutchotitham said.

Citi also expects the Monetary Board to cut rates by 25 bps at its October and December meetings, for a total of 75 bps for the full-year 2024.

“The BSP may, with some small probability, err on the cautious side and stand pat in August, given July’s inflation print at 4.4% year on year amid volatile food and energy prices,” Ms. Chutchotitham said.

A BusinessWorld poll conducted last week showed that nine out of 16 analysts surveyed expect the Monetary Board to deliver a 25-bp rate cut at Thursday’s review. This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the coronavirus pandemic.

BSP Governor Eli M. Remolona, Jr. last week said they may be “a little bit less likely” to cut rates at its upcoming meeting amid the uptick in July inflation.

At the same time, ING Bank N.V. Research Head and Chief Economist for Asia and the Pacific Robert Carnell said he now expects the BSP to keep rates on hold on Thursday due to recent market volatility.

“Were it me… I probably would leave it this month and wait until the market’s a little calmer,” he said at a briefing on Monday. “The thing that I think makes it more of a coin toss is the volatility of the market backdrop. We have been through a really, pretty hectic and volatile couple of weeks.”

Stronger-than-expected GDP data in the second quarter and July inflation also don’t support the August rate cut, Mr. Carnell said.

“The GDP numbers could have supported that had they been weaker… Having said that, the inflation numbers made it slightly less likely that they’d be easing in August,” he said.

Mr. Carnell also noted that the BSP should wait for other central banks to cut rates first to see how the market reacts.

He expects the Fed to cut by 100 bps this year — a 50-bp cut in September, a 25-bp cut in November and another 25-bp cut in December.

“I just think the optics will look a little bit better in a month’s time, and there’ll also be that sort of safety in numbers at that stage, because we will have the Fed easing by then,” he said.

Aside from its scheduled policy meetings, Mr. Carnell also said that the BSP could still implement an off-cycle rate cut, but this move carries the risk of unnecessarily alarming the market.

Mr. Remolona earlier said that they are “always open” to off-cycle rate cuts.

Source: Business World