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Research & Forecast Report

Yangon | Hotel Market 3Q 2014

Upsurge in upper-scale ADR dampens occupancy ratesThe lineup of upper-scale hotel projects is on the rise on the back of the strengthening tourist and business arrival levels. Moreover, the strong inflow of foreign investments for the sector continues to fuel supply particularly in the four and five star hotel segments. As a result, the upper-scale room stock in Yangon is set to double within the next five years, to over 4,000 rooms.

While demand prospects are healthy, the further surge in ADR is downside pressure to the already lowering levels of occupancy rates. As of 3Q 2014, Yangon’s average occupancy rate dropped by four percentage points as against to the same period last year, and is much lower than that in 2012 by six percentage points. Meanwhile, the ADR remains on an upward trajectory to end at USD 161 – up by 10% and 22% as opposed to 3Q2013 and 3Q2012, respectively. The continuous rise in ADR will most likely deter demand for upper-scale hotel.

Forecast Direction

2Q 2014 – 2Q 2015

New Supply

Occupancy

ADR

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

The lineup of foreign-invested hotels continued to build upThe number of upper-scale hotel rooms in Yangon remained scant having had an unchanged stock since 1998. However, dramatic increases in foreign arrivals over the past few years have led to significant growth in revenues, consequently drawing the number of foreign invested projects to substantially rise.

The latest government data reveals that as of 3Q 2014, the size of foreign investment in the tourism sector hit nearly USD 2 billion. Out of the existing 1,076 hotels nationwide, 31 are foreign-operated. Furthermore, the number of foreign-led investments is expected to continually heighten on the back of the strengthening tourist and business arrival levels. The attractive government initiatives, such as tax incentives and 100% ownership will continually reinforce foreign capital inflow for the sector.

Yangon is poised to accommodate many of these foreign investors - eager to tap the supply gap especially in the four to five star hotel segments. In fact, within the next five years, over 16 new upper-scale hotels are set for completion, collectively representing over 4,000 rooms. This will more than double the city’s current supply stock of 2,100 rooms.

Most of the upcoming projects will be operated by international hotel brands of which some have already established a footprint early on. At present, there are five, namely, Pan Pacific Hotel Group (Park Royal Yangon), Shangri-La International Hotel Management (Sule Shangri-La), General Hotel Management (The Strand Hotel, Inya Lake Hotel), Belmond Ltd (The Belmond Governor’s Residence), Keppel Land (Sedona Hotel). Other

brands and operators appointed for future projects are Hilton Worldwide (Hilton Hotel Centerpoint Tower), Accor (Novotel Hotel Max, Pullman Yangon) The Peninsula Hotel (The Landmark Heritage Hotel), Kempinski (The State House Hotel), Wyndham Hotels & Resorts (Wyndham Hotel Kantharyar Centre) to name some. Pan Pacific will similarly be expanding its presence with another planned five star hotel in Junction City while Keppel Land’s Sedona Hotel extension is under way. The Shangri-La group has similarly laid out plans for another five-star hotel near the Kandawgyi Lake, and its construction is scheduled to be rolled out in the near term. Additionally, future large-scale and integrated developers such as HAGL Myanmar Centre, Dagon City 1, and Golden City are confident to bring top class international hotels to serve as key components in each respective development.

Limited upper-scale hotels in key emerging destinationsBased on the latest government data, a big majority of both locally and foreign-owned hotels are located in Mandalay Region (329 hotels), Yangon (279 hotels) and Shan State (200 hotels). Though foreign invested hotels are evident in key commercial and tourism centres namely Yangon, Mandalay, and Bagan, their presence is extremely limited in untapped tourist destinations such as in Kawthoung and Myeik in Tanintharyi Division. One of the very few upper-scale hotels in the region is Pearl Laguna Resort, a subsidiary of KR Commercial Property based in Thailand. Located in Myeik’s Yebone ward, the five-star hotel currently runs with close to a hundred rooms. However, elsewhere in the division, the existing room stock is meager and the pipeline is weak.

Yangon Upper-scale Room Stock

Source: Colliers International Myanmar

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

Yangon upper-scale hotel occupancy rates continued to trend downward

The average occupancy rate of all upper-scale hotels in Yangon continued to trend downwards, to end at 57% in 3Q 2014. The rate was four and six percentage points lower than in the same period in 2013 and 2012, respectively. The drop in occupancies were noted particularly in most of the hotels in Downtown and the Inner City zones. In contrast, the occupancy rate in the Outer City zone revealed an increasing direction, growing by 4% as against to 3Q 2013, and 7% than in 3Q 2012. However, the magnitude of increase was insufficient to buoy the overall city-wide occupancy rate for the quarter. Meanwhile, compared to 2Q 2014, the occupancy rate improved by 5% - an expected seasonal uptick especially towards the end of the quarter, signaling the

end of the rainy season. The direction for occupancy rates is still heading for a decline if the average daily rates (ADR) continue to increase amid growing competition from locally-owned lower grade hotels.

Surge in ADR will be unsupported by the upcoming potential demandDespite the lowering trend of occupancy rates, the ADR of upper-scale hotels in Yangon continued to expand year-on-year, which ended at USD 161 in 3Q 2014. The rate was up by 10% and 22% compared to the same period in 2013 and 2012, respectively. Though the ADR in Downtown and the Inner City zone was fundamentally stable on an annual basis, the rate remain on the high side. Furthermore, the ADR in the Outer City zone soared remarkably by 58% YoY, and is now parallel with the Inner City Zone at USD 152. A further significant rise in the zone’s ADR will be a potential downside risk to its improving occupancy performance.

In the near to medium term, the overall hotel demand prospects are healthy. Myanmar’s immigration authorities have now set up online electronic (e)-visa to tourists from more than 24 countries. This is reinforced with the increasing number of flights to Yangon as 2014 sees a total of 25 airlines - a 56% growth over 2012’s 16 airlines. Leading to the ASEAN integration in 2015, the number of business visits from neighbouring countries will similarly rise. Besides those coming from Thailand, Singapore and Malaysia, business visits from rapidly growing economies such as Philippines and Indonesia will most likely transpire. Meanwhile, investors from China, Korea and Japan will remain high, with some of them being in the country in almost every month. With hopes of successful elections and the continuous lifting of sanctions, the frequency of business visits from the US and EU regions will also heighten. These positive indicators bode well for the hotel market as a whole. However, the substantial growth in ADR’s going forward will most likely be unsupported by the potential upper-scale hotel demand.

Source: Colliers International Myanmar

Yangon Upper-scale Hotel Average Occupancy Rate by Location

The outlook for emerging tourist destinations such as in Southern Myanmar is healthy owing to the region’s scenic features such as unspoiled beaches and island attractions, rivaling to its bordering country Thailand. But then, the current lack of proper infrastructures and facilities, and the limited availability of top-tier graded hotels hamper further growth in tourism. At present, Tanintharyi division has four domestic airports but require substantial upgrades.

ADR & Average RevPAR (Upper-scale Hotel)

Source: Colliers International Myanmar

65%63%

59%57%

Karlo PobreResearch Manager Research & Advisory+95 (0) 931 336 099karlo.pobre@colliers.com

Theint Theint ThwinResearcher Research & Advisory+95 (0) 950 267 22theint.thwin@colliers.com

Tony PiconManaging Director | Myanmar+95 (0) 942 103 4026antony.picon@colliers.com

Copyright © 2014 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.

Colliers International Myanmar Unit 7/C (6th Floor) White Cloud Building, No. (138/142) Thein Phyu Road, Botahtaung Township Yangon Myanmar TEL +95 (0) 931 491 678

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