The July 2018 property cooling measures has substantially shifted investor focus to other real estate assets away from the residential sector.
Hotel investments have typically been a small proportion of the total investment tally in Singapore. However in 2018, hotel investment sales hit a four-year high of S$1.36 billion, Cushman & Wakefield research indicates.
We are seeing a lot more interest from investors looking to trade hospitality assets. Waterloo Apartments was the first en bloc site in the current en bloc cycle to have received permission to be re-zoned for hotel use after the July 2018 cooling measures. It was sold in November 2018. That sale was the catalyst for the sale of several hotel assets in quick succession – Ascott Raffles Place, the Stevens Road hotels and the Club Street hotel site at a record. All these point to rising interest in investors acquiring sites for hotel use. Late last year, Fragrance Group announced plans to develop hotels on the Tower 15 plot it purchased.
Except for the sites in the central areas with restrictions on hotel use, the market is looking at all other commercial sites outside of these restricted areas with the potential to be converted to hotel use.
Factors Contributing to Hotel Investment Interest
This uptick is being driven by a number of factors. First, the very healthy tourist arrival numbers projected and secondly, the shift to other asset classes following the July 2018 cooling measures that have dampened demand for residential sites. The optimism around the hospitality sector has emboldened investors to look at this asset class seriously.
Tourism plays a big part in the optimism amongst investors for hotel sites. Tourist numbers in 2016 and 2017 saw record arrivals, and for the period of January to November in 2018, inbound tourism grew 6.6 per cent year-on-year.
Outlook on Supply
The supply pipeline in the next few years is expected to taper. Cushman & Wakefield numbers show a dip in the number of extra rooms available on the market, with an average of 742 extra rooms per year from 2018 to 2022, down from 3,357 annually between 2014 and 2017. And with the Tourism Board’s recent announcement to revitalise Orchard Road, the focus on hotel sites is expected to sharpen further.
Seeking conversions to hotel use seem to be a quick fix for residential en bloc sellers looking to sell. But investors continue to tread carefully given that the economy is expected to slow and sentiments on investments appear muted. The first quarter investment tally will be a useful indicator on the outlook for hotel investments for the rest of the year.