colliers international yangon upper scale hotel report 4q 2014

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Research & Forecast Report

Yangon | Upper Scale Hotel Market 4Q 2014

Planned influx of foreign operators as tourism sector continues to growThe number of upper-scale hotel rooms in Yangon is expected to grow significantly as over 1,000 rooms are scheduled to be completed in 2015.

Demand is projected to continually expand as the country is expected to receive its highest ever influx of foreign arrivals.

Both Yangon and Mandalay International Airports are being refurbished to cope with higher passenger numbers, while the US$1.5 billion Hanthawaddy International Airport is scheduled for completion in 2019.

However, high upper-scale daily rates, particularly in Yangon, remain common and may prove a deterrent to healthy occupancy levels as more visitors prefer lower cost accommodation.

The current average occupancy rate is 9% lower than in 2012, and is forecast to fall by another two percentage points over the next year. That aside, the average daily rate has increased threefold since 2010.

Forecast Direction

4Q 2014 – 4Q 2015

New Supply

Occupancy

ADR

2 Research & Forecast Report | 4Q 2014 | Yangon | Hotel Market

Upper-scale hotel room stock to double over the next two years as local and foreign companies investThe number of upper-scale hotel rooms in Yangon remains sparse. Just over 150 rooms were added over the past year, mostly as a result of the room stock expansion in the recently renovated and rebranded Sule Shangri-La Hotel, formerly called Traders Hotel. This at least offers some growth of a stock consistently unchanged since 1998.

There are only 12 existing upper-scale hotels in the city, as tracked by Colliers, translating to over 2,000 rooms. As tourism and business interest grows, largely influenced by political and economic reforms, hotel developers and foreign operators alike are taking a keen interest in the current dearth of supply. Over the next two years, the upper-scale hotel room stock in Yangon is expected to double with new projects and some hotel expansions currently in the pipeline. Meanwhile, two hotels are set for completion in 2015, with four big projects pushed back to 2016.

Centerpoint Grand Hotel, previously slated to be Hilton, is expected to add a further 300 rooms as it commences operations in the mixed-use Centrepoint Towers project in Downtown. The Sedona Extension, operated by Keppel Land, will add another 420 rooms in the Yankin area of Outer City in 2016.

More foreign hotel brands will similarly emerge in the medium term. This includes the Swiss luxury hotel group, Kempinski, in partnership with Kanok Co. from Thailand. The team are in the process of transforming the colonial State House Building into a luxury hotel, its second project in Myanmar following the initial venture in Naypyitaw. Furthermore, the Daewoo Amara Hotel will be operated by Korean luxury hotel chain, Lotte Hotel and Wyndham will manage Kantharyar Centre’s 5-star hotel.

Recently, Pan Pacific has also signed a joint venture deal with Shwe Taung Group for a hotel development in the integrated project, Junction City. Golden City and Dagon City 1 are most likely to follow suit and appoint other international operators to set up in their respective mixed-use projects.

After the soft launch in 2Q 2014, Rose Garden Hotel is set to officially open in the next six months, adding 165 rooms from the current stock of 123 rooms. This will join the Novotel Max (366 rooms) in Pyay Tower in the Inner City area, one of the ten hotels the French hotel management company, Accor, has planned for Myanmar.

Slow construction has been problematic, the HAGL Myanmar Centre in Bahan, operated by Vietnamese developer, Hoang Anh Gia Lai, has been pushed back until 2016, when it will add 480 rooms to Yangon’s stock. Similarly, Pullman Yangon Myat Min, initially scheduled to open in 2015, is most likely to be pushed back to a later year. The project, to consist of 300 rooms, is located in North Okkalapa in the Outer City Area, and will be the first Pullman brand in the country.

Yangon Upper-scale Room Stock

Source: Colliers International Myanmar

3 Research & Forecast Report | 4Q 2014 | Yangon | Hotel Market

Yangon upper-scale hotel occupancy rates continued to trend downwards

Despite the upsurge in foreign arrivals, the average occupancy rate of all upper-scale hotels in Yangon dampened in two consecutive years. As of the end of 4Q 2014, the rate dropped by four and five percentage points compared to the same period in 2013 and 2012, respectively. The year-on-year (YoY) decline was consistently seen in most of the hotels in the Downtown and Inner City zones, as in the previous quarter. The Inner City zone registered the weakest occupancy to end at 69%. In contrast, the Outer City area continued to benefit from healthy take-up rates with a 9% increase YoY. In addition, the zone recorded a strong 78% occupancy rate, the highest among all locations. The overall lowering levels of occupancy can be continually attributed to the high average daily rates and increasing competition from lower grade but good-quality local hotels.

Colliers predicts that the Average Daily Rate (ADR) will dip slightly in 2015 as upper-scale hotel owners begin to be mindful of new competitors. However, the current high-based ADR will still likely pull occupancy down in the short term, albeit at a relatively lesser magnitude than the previous years.

The latest data suggests that the decline in ADR has already begun. In 4Q 2014, the ADR among all upper-scale hotels in Yangon witnessed its first YoY decrease, since the corresponding period in 2012 and 2013. Both Downtown Yangon and the Outer City zone posted a 4% drop in ADR while a 3% decline was recorded in the Inner City area. The ADR remained highest in Downtown and lowest in the Outer City zone. Overall, while the city-wide average rate is 3% lower than in 4Q 2013, it remains, however, higher than 4Q 2012’s US$162 per room per night.

Despite the slight decline in ADR, the citywide Revenue per Available Room (RevPAR) declined by 8% YoY. A noticeable 17% decrease occurred in the Inner City zone, while a 10% drop followed in Downtown. In contrast, a rise in RevPAR transpired in the Outer City zone. Notwithstanding the drop in the zone’s ADR, the relatively higher occupancy rate facilitated the rise in RevPAR to settle at US$130 (+14 YoY). However, the increase was inadequate to buoy the overall RevPAR.

There are also a number of large projects planned out of Yangon, especially in Nay Pyi Taw, Bagan and Inle Lake. In an encouraging sign for the nation’s hotel industry, foreign brands (Novotel, Hilton and Accor) are increasingly managing high-quality hotels outside of Yangon.

The substantial rise in new hotel projects over the past two years comes as result of the unprecedented growth in foreign arrivals. The country attracted 3.05 million foreign arrivals in 2014, above the government forecast. Meanwhile, core data from the Union of Myanmar Travel Association (UMTA) shows that over a million entered via airports – a better indication of visitor numbers. This implies arrivals through Yangon International Airport easily surpassed 2013 by over 50%. Asia remained the biggest source market, comprising 70% of the tourist arrivals. This includes Japan, Thailand and China. Outside of Asia, the US, France, and UK topped the list.

ADR & Average RevPAR (Upper-scale Hotel)



Yangon Upper-scale Hotel Average Occupancy Rate

81%76% 72% 70%

Karlo PobreManager Research & Advisory+95 (0) 931 336 [email protected]

Theint Theint ThwinResearcher Research & Advisory+95 (0) 950 267 [email protected]

Tony PiconManaging Director | Myanmar+95 (0) 942 103 [email protected]

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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