CBRE shares positive outlook on Malaysia's hotel sector

KUALA LUMPUR (Apr 29): With a resilient domestic tourism sector and Malaysia's growing popularity as a halal tourism destination, Kuala Lumpur is poised to reap the benefits of the reopening of international travel, CBRE said in a recent Kuala Lumpur Hotel Market Outlook & Prospects 2022 report by CBRE|WTW’s global joint venture partners, CBRE Asia Pacific.

Concurring with the findings of the report, CBRE|WTW chairman Foo Gee Jen noted the reopening of international borders on Apr 1 this year will provide a positive outlook for the tourism sector and drive the market to slowly regain its momentum. 

"The industry players are optimistic. With the reopening of the borders comes an increased confidence level of tourism operators within the market," he said.

Meanwhile, he added the Malaysia Association of Hotels (MAH) has anticipated the hotel occupancy to reach 60% in the third quarter of this year, mainly contributed by international tourists.

"To support this arrangement, entry procedures have been eased compared to last year, and this may increase the demand for tourism products. Business travelling as well as leisure expenses on resorts located in Langkawi, Melaka and other getaway islands will see a gradual rise as many have grown to worry less about the statistics of the Covid-19 numbers," said Foo.

Nearly 5,000 hotel rooms to be launched 

The report further noted the recovery is to be largely driven by the return of Singapore travellers. According to the report, Singapore has historically been the top source market for Malaysia, accounting for an average of 46% of total arrivals between 2015 and 2019.

Meanwhile, CBRE said that KL has recorded an upward trajectory in hotel RevPAR (revenue per available room) in the last quarter of 2021. Thus, it expects the RevPAR to continue increasing in the coming years as international brands enter the market, coupled with luxury and upscale hotel projects that are due for completion.

As of 2021, KL hotel room supply consisted of 23% economy, 19% midscale, 15% upper midscale, 22% upscale, 12% upper-upscale and 8% luxury. Over the next three years, luxury and upper-upscale will account for over 60% of the total new supply. Nearly 5,000 hotel rooms are expected to be launched this year. Mid-scale hotels in the city continue to maintain a healthy gross operating margin range of about 40% to 50%, in line with other well-established markets in the region like Singapore, CBRE said.

Investment volume expected to pick up

Besides that, investment volume is also expected to pick up in 2022, according to the report. “Price dislocation opportunities will be limited on the back of optimism for border reopenings and tourism recovery.” 

Nevertheless, CBRE advises investors to focus on assets that are located in established leisure and corporate districts within the city and with proven track records of strong operating cash flows. 

“The impending rise in construction costs due to the current supply chain constraints will also favour existing completed hotels as they are ready to tap on the demand spike from borders reopening.”

In terms of the lending environment, CBRE noted that the climate remains cautious for hospitality assets across the region, with important factors to secure sufficient financing including asset quality, upside story and buyer’s profile. With the economy and tourism industry picking up in 2022, CBRE expects financial institutions to remain keen to participate in the growth trajectory of the hospitality sector in Malaysia.

“KL has been a longstanding nexus for business and leisure travel in the region. But like many travel hubs during the pandemic, the hotel industry in KL has had to navigate the challenges brought by the pandemic.

"However, the city’s strong economic growth and the Malaysian government’s robust plan to reopen its borders to international travel and revitalise its tourism industry, coupled with improving fundamentals and notable infrastructure developments in the pipeline, make KL’s hotel market a prime candidate for investment in 2022 and beyond,"  said CBRE head of hotels & hospitality, Asia Pacific Capital Markets Steve Carroll.

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