Singapore Hotels Lure Buyers With Asia’s Best Rates

By Publications Checkout
Singapore Hotels Lure Buyers With Asia’s Best Rates

Mamoru Kohda, who scouts the globe for properties for Japan’s Daisho Co., began looking for a hotel in Singapore in early 2013. Within a year, the property investor and developer had acquired the newly opened Westin in the island-state’s financial district for a record price. 

“Singapore’s hospitality market will continuously grow, supported by tourists and corporate travellers,” Kohda, a director at Daisho Development Singapore Pte in Brisbane, Australia, said in a phone interview. He travels the world seeking assets for the company, which has more than $1.5 billion in property holdings.

Singapore is attracting hotel chains such as Accor SA and the InterContinental Hotels Group Plc, which are both adding new properties in the island-state, where the average daily hotel room rate is the highest in Asia. Accor will open its Sofitel So brand in the business district next month and its first Ibis Styles brand in Singapore in 2016, while InterContinental opened its Holiday Inn Express in the city’s nightlife hub of Clarke Quay in March.

Investors are gravitating to Singapore because of a record number of leisure and corporate visitors and a scarcity of properties to buy. Tourist arrivals in Southeast Asia’s biggest financial center are forecast to hit a record and daily room rates exceed those in Tokyo and Hong Kong, cities with among the highest hotel rates in the region.

Eleven hotels valued at S$2.45 billion ($1.95 billion) were sold in Singapore last year, four times the total in 2012, according to deals tracked by property broker Savills Plc.


‘Aggressive Bidding’

“We are seeing some pretty aggressive bidding just to get into Singapore,” said Robert McIntosh, executive director at broker CBRE Group Inc.’s Asia-Pacific hotel business in the island-state. “Some of the landmark iconic properties, which are extremely well sought after, aren’t driven just by income, but by long-term capital gains.”

Visitor arrivals in the city off the tip of Malaysia are forecast to grow as much as 8% to a record 16.8 million this year from 2013, while revenue may climb by as much as 5% to S$24.6 billion, the Singapore Tourism Board forecasts.

Singapore accounted for 16% of a record 143 deals valued at $13.4 billion in the Asia-Pacific region last year, according to CBRE. That’s an increase in hotel sales from a 6.8% share of deals in Asia in 2012, CBRE data showed.

Record Visitors


The island-state attracted a record 15.5 million visitors and business travelers in 2013, according to the tourism board, with events such as Formula One’s night races with concerts featuring singers such as Rihanna and Justin Bieber, and attractions including a S$1 billion downtown park with a flower dome of plants from around the world that opened in 2012.

Singapore retained its position as the world’s leading place to hold conferences in the latest global rankings by the Brussels-based Union of International Associations. Events included SkyBridge Capital LLC’s inaugural Asian hedge fund conference in 2012, modelled on the company’s popular SkyBridge Alternatives Conference in Las Vegas.

The Marina Bay Sands, a four-year-old resort, retail and restaurant complex, dominates the city’s skyline, and houses a casino built by U.S. billionaire Sheldon Adelson’s Las Vegas Sands Corp. at a cost of $6 billion. Resorts World Sentosa, built by Genting Singapore Plc for S$7 billion in 2010, houses Southeast Asia’s only Universal Studios theme park.

‘Strong Market’

“Singapore is a very strong market and one of our top markets in Asia,” said Michael Issenberg, Accor’s chairman for the Asia-Pacific region. “Demand is high as Singapore does a great job with the conferences, leisure and corporate sector and a lot of airline business, it’s got a good mix.”


The average daily hotel room rate in Singapore was $206 in 2013, near the record $209 set in 2012, according to Cushman & Wakefield Inc. That compares with $166 in Tokyo and $185 in Hong Kong, according to the broker.

Tokyo-based Daisho in December bought the 305-room Westin within the Marina Bay business area from a fund owned by BlackRock Inc. for about S$468 million, or a record S$1.5 million per room, according to CBRE.

“Since the hotel is brand new, we considered some price premium,” Kohda said. “The area is developing very quickly and has a very strong pool of office tenants so we thought that the hotel has more potential to grow.”

Daisho has developed overseas projects including the 510-room hotel managed by Hilton Group Inc. in Kuala Lumpur and the Park Hyatt Sydney hotel that it refurbished in 2012, according to the company.

Rising Revpar


There were no hotel transactions reported in the quarter ended in March because of the gap between buyers' and sellers’ expectations on price, according to CBRE. The broker tracked 13 hotel transactions in Singapore last year, five of which sold for more than S$1 million per room, the most number of deals struck above that price, data from the property broker showed.

Revenue per available room or revpar -- an industry measure of occupancy and rate -- in Singapore may increase by 3 percent annually through 2016 for hotels across all lodging categories, Standard Chartered Plc said in a note to clients on March 10. Growth will be driven by arrivals and tourist spending increases of as much as 10 percent per annum as global economic conditions and corporate spending improves, according to the report.

Singapore’s revpar declined 1.4% last year amid an increase in supply, said Akshay Kulkarni, regional director of hospitality for South and Southeast Asia at Cushman in Singapore. The revpar rose 0.9% to S$214.10 in January, according to the latest data from the Singapore Tourism Board.

Chinese Tycoon

Among properties bought by foreign investors was the 308-room Grand Park Orchard and its shopping mall along Orchard Road, Singapore’s prime shopping belt. It was acquired for S$1.5 million per room by Chinese steel tycoon Du Shuanghua through his Singapore-based company Bright Ruby Resources, Knight Frank LLP said in its third-quarter 2013 report.

“Interest is still very strong for Singapore assets,” said Julien Naouri, associate director of hotels for Asia Pacific at Savills. “It’s a very transparent market and more and more investors from China are wanting to put some money here and hospitality is one of the asset classes they are familiar with.”

While the number of total deals in Singapore will be higher in 2014 than last year, the price paid per room may decline slightly and the number of high-value transactions could drop as it becomes increasingly challenging for investors to find prime hotel assets, Cushman’s Kulkarni said.

Luxury hotels, such as the Ritz-Carlton, Millenia Singapore and Raffles Singapore, was the only group that had an increase in the revenue per available room, up 9.74%, in the 11 months to November, according to the tourism board. The measure for upscale, mid-tier and economy segments declined by 10.57%, 3.08% and 8.64% respectively in the period, the tourism board data showed.

‘Long-Term Play’

“Singapore hotel investments remain on the radar of many core investors,” Kulkarni said. “While yields may look low, one must not forget that this is a long-term play with capital appreciation as the bigger game, rather than pure yield play.” Hotel yields ranged from 3% to 4.5% last year, Kulkarni said.

Demand is also being supported by local investors chasing the assets. Ascendas Hospitality Real Estate Investment Trust bought the Park Hotel Clarke Quay for S$300 million from Parksing Property Pte, a member of the Park Hotel Group, according to a joint statement from the companies in June.

“This is a small little island so there is a scarcity of assets and land,” Tan Juay Hiang, chief executive of Ascendas Hospitality Trust, said in a phone interview. “There is more certainty in investing here than in other parts of Asia.”

Singapore added 15,746 rooms over the past five years while Hong Kong added 14,257, according to CBRE.

RB Capital

Singapore-based RB Capital, a real estate company focused on the acquisition and development of retail, office and hotel properties, in August bought the 223-room Gallery Hotel along the Singapore River for S$1.03 million per room, according to Savills and Knight Frank.

HKR International Ltd., a Hong Kong-based property developer, sold The Sentosa Resort & Spa to Royal Group Development Pte, a Singapore-based property development and management company, for S$210.85 million, HKR said in a filing on Aug. 15.

Luxury Hotels

“We see opportunities in upscale and luxury hotels,” said Bobby Hiranandani, managing director at Royal Group, adding that the company plans to revamp the Sentosa Resort, re-brand it as a Sofitel hotel and position it for conferences. “There is an oversupply of rooms in economy and budget hotels, but no one is building upscale luxury hotels and the existing supply is getting older.”

Demand for hospitality assets in the island-state, 137 kilometers (85 miles) north of the equator with tropical weather all-year-round, will remain intact, with investors unlikely to be concerned by lower returns, said CBRE’s McIntosh.

Singapore added 3,900 rooms last year, the most in three years, and is forecast to add 2,037 rooms this year, according to CBRE. Another 3,000 are expected to be added in 2015, McIntosh forecasts. That could lead to a decline of as much as 5 percent in revenue per available room, he said.

“The sheer weight of capital trying to find a home” is driving hotel acquisitions, said McIntosh. “Investors are ready to accept yields of sub-4.5% even for three-star properties.”