Bright prospects for Klang Valley hospitality market

PROSPECTS for the Klang Valley hospitality market look bright, thanks to a rise in tourist arrivals. Last year, the number of visitors rose 1.3% to 25 million from 2011 while total tourism receipts rose 4%, generating RM60.6 billion.

There were more tourists from the Philippines, China, Indonesia, Japan and Brunei but fewer from Australia and New Zealand because certain direct flights to the two countries were ended.

According to the latest figures released by the United Nation's World Tourism Organization (UNWTO), Asia-Pacific recorded a 7% increase in tourist arrivals, which translates into 233 million tourists in 2012, and contributed to international tourist arrivals exceeding the one-billion mark for the first time. Southeast Asia and North Africa topped the list with 9% growth in tourist arrivals in 2012.

The agency says growth was fuelled by both inbound and outbound recovery in Japanese tourism, which had been affected by the Tohoku earthquake in March 2011.

In 2011, Malaysia was among the top 10 global tourist destinations listed by the UNWTO, the only Southeast Asian country to ever make it to the list.

According to The Edge — Zerin Properties Klang Valley Hospitality Market 2H2012 report, things were good throughout the period with a notable influx of new hotel rooms. The performance of three to five-star hotels remained stable without much fluctuation in occupancy rates and average room rates (ARR) from 1H2012 to 2H2012.

The Malaysian tourism industry is expected to continue to grow, driven by the Budget 2013 announcements, including tax exemption for tour operators and declaring 2014 Visit Malaysia Year.

The upcoming general election and its outcome are unlikely to have a significant impact on the industry or the market, says Previndran Singhe, CEO of Zerin Properties Sdn Bhd.

"Although there is the possibility of a temporary slowdown as potential investors may adopt a 'wait and see' attitude, the continuous implementation of the Economic Transformation Programme (ETP) and Entry Point Projects (EPP) will keep the economy active, which means a brighter outlook for 2H2013."

The hospitality market is deemed strong as a number of hotels are opening this year, which will help keep the industry moving as competition hots up among hoteliers, he adds.

"Moreover, the many initiatives of the government and tourism ministry to draw more visitors to Malaysia in conjunction with Visit Malaysia Year 2013/2014 as well as the 100% tax exemption for tour operators are expected to spur the industry on."

Tour operators that bring in at least 750 foreign tourists or handle a minimum of 1,500 local tourists each year will enjoy an income tax exemption for up to three years.

The government proposed an allocation of RM358 million for the Visit Malaysia Year 2013/2014 campaign that targets about 26.8 million tourist arrivals each in the two years.

KLIA2, the new low-cost airport that is scheduled to open in the middle of this year, has the capacity to handle a maximum of 45 million passengers a year. Together, KLIA and KLIA2 can accommodate a growing number of tourist arrivals, consistent with the government's target to achieve 36 million tourist arrivals and RM168 billion in receipts by 2020.

In the pipeline

In 2H2012, six hotels opened in line with the country's aim to have 3,000 more four and five-star hotel rooms by the end of 2012. The long-term goal is to have an additional 37,000 four and five-star hotel rooms by 2020.

As at Dec 31, 2012, there were a total of 41,491 hotel rooms in the Klang Valley, of which 9,412 were three-star, 13,694 four-star and 12,401 five-star. New supply in 2012 came from the opening of the Grand Hyatt Kuala Lumpur (370 rooms), the Royale Bintang Damansara (300 rooms), Ibis Styles Hotel (156 rooms), Ibis Styles Frasier Business Park (500 rooms), Vivatel Hotel (302 rooms) and the Majestic Hotel (300 rooms).

Of the total supply of hotel rooms, 30,144 (72.65%) were in Kuala Lumpur while the remaining 11,347 (27.35%) were outside the city limits. There were about 5,984 budget hotel rooms in Kuala Lumpur.

A number of hotels are in the pipeline, including the Aloft Hotel in KL Sentral (482 rooms), Holiday Villa Kuala Lumpur (203 rooms), Pullman Kuala Lumpur Bangsar (513 rooms) and the boutique-style Wolo at Bukit Bintang (168 rooms).

Impiana Group is also seeking to expand its portfolio, which comprises Impiana Hotel Kuala Lumpur, Impiana Resort in Cherating, Pahang, and Impiana Private Villas Kata Noi, Phuket, among others. The group will convert Menara Mara in Jalan Tunku Abdul Rahman into a four-star hotel called Premiera Hotel that will offer 90 rooms and is scheduled to open in 1Q2013.

The Four Seasons Place Kuala Lumpur project has also started and is expected to be completed in mid-2016. It will have 231 hotel rooms and 250 residences and serviced apartments.

Meanwhile, Ireka Corp Bhd has unveiled a mixed-use development in Jalan Kia Peng. Dubbed The RuMa Hotel & Residences (formerly Kia Peng@KLCC), it comprises a 40-storey tower that will house a 263-room boutique hotel and 200 serviced residences. Prices start at RM2,000 psf.

Recently, Malaysia Airports Holdings Bhd Group (MAHB) announced its intention to manage its existing and future hotels under its newly created brand Sama-Sama and discontinue the service of the established brand Pan Pacific. MAHB will manage the Sama-Sama KL International Airport Hotel (formerly the Pan Pacific KLIA) and the transit hotel located in the satellite building of the KLIA. Additionally, MAHB will operate the soon-to-be-opened transit hotel in the KLIA2 terminal, which is to be known as Sama-Sama Express KLIA2.

It is worth noting that the 35-storey, five-star Crowne Plaza Mutiara Kuala Lumpur (500 rooms) will be demolished to make way for a mixed-use development that will be known as the Tradewinds Centre.

Future supply of hotel rooms

There are a number of new hotels in the Klang Valley in various stages of development. An estimated 1,456 hotel rooms in Kuala Lumpur city will enter the market this year with Pullman Kuala Lumpur in Bangsar and Aloft Hotel in KL Sentral contributing the most rooms — 513 and 482 respectively.

The future supply of hotel rooms from 2013 to 2018 is expected to total 2,366, contributed by Allson Capital Hotel (198) in Medan Tuanku that is expected to be completed in 2014; St Regis Hotel in KL Sentral (208), ready at the end of 2014; Best Western Bangsar (216) in 1Q2015; Arcoris Mont'Kiara (275) in 2015; Banyan Tree Signatures Pavilion Kuala Lumpur (50) in 2015; Holiday Inn Express (200) in 2015; The Regent (238) in 2Q2015; W Hotel (150) in 2016; Platinum Park (350) between 2016 and 2017; Four Seasons Hotel (231) in mid-2016; and Harrods Hotel (250 to 300) in Jalan Conlay that is expected to be completed in 2018. All in all, the total number of rooms in Kuala Lumpur city with incoming supply from 2013 will be more than 3,822.

From 2013, there will be more than 2,523 rooms outside Kuala Lumpur city. The number of rooms in The Olives Hotel in Subang Jaya; Sama-Sama Express KLIA2 in Sepang; Lot 12, PJ Sentral Garden City at Section 52, Petaling Jaya; and Premiere Hotel in Kelana Jaya is not known.

Occupancy and average room rates

Klang Valley

Overall, occupancy of five-star hotels in 2H2012 stood at 70% compared with 68.48% in 1H2012. Occupancy was 72.94% in the previous corresponding period.

The average occupancy rate of four-star hotels stood at 66.7% compared with 66.98% in 1H2012 while for three-star hotels, it was 70%, rising slightly from 67.84% in 1H2012.

The average room rate (ARR) of five-star hotels in the Klang Valley in 2H2012 was RM346, up slightly from RM344 in 1H2012 and 2H2011. ARR for four-star hotels was RM237 while in 1H2012 and 2H2011, it was RM224 and RM226 respectively. For three-star hotels, ARR in 2H2012 was RM160 while in 1H2012 and 2H2011, it was RM153 and RM150 respectively.

Kuala Lumpur

In Kuala Lumpur city, the total supply of three to five-star hotel rooms stood at 24,160. Of this, 7,938 were five-star, 10,491 four-star and the remaining 5,731 three-star.

Average occupancy of the three, four and five-star hotels in Kuala Lumpur improved from 1H2012 to 2H2012, although the three and four-star hotels posted slight declines from the previous corresponding period. Occupancy of five-star hotels in KL was 78% — an increase from 1H2012, but unchanged from a year ago. Four-star hotels in KL recorded average occupancy of 71.21% in 2H2012 — up from 69% in 1H2012, but lower than 74% in 2H2011. The three-star segment recorded 70% occupancy in 2H2012 compared with 68.21% in 1H2012, dropping from 1H2011 when the rate was 72.93%. This was largely due to a large supply of hotel rooms in 2H2012 — the industry normally takes some time to fully absorb new supply.

Overall, the ARR of three to five-star hotels in Kuala Lumpur improved from 1H2012 — it was RM170, RM251 and RM382 respectively compared with RM161, RM235 and RM376 in 1H2012. In 2H2011, ARR for three to five-star hotels was RM164, RM241 and RM382 respectively, indicating a slight y-o-y increase for the three and four-star hotels.

As for budget hotels, none was completed in 2H2012 with total supply of rooms in Kuala Lumpur standing at 5,984. Occupancy of these hotels was 62% in 2H2012 compared with 59% in 1H2012 and 65% in 2H2011. ARR for budget hotels was around RM100 in 2H2012, 1H2012 and 2H2011 respectively.

Serviced apartments

In 2H2012, there were 29 serviced apartment projects in Kuala Lumpur city that offered 5,268 units including two that were recently completed — the Grand Hyatt Kuala Lumpur (42 suites) and the E&O Residences Kuala Lumpur (200 units). The expansion of Fraser Place Kuala Lumpur (106 apartments) also contributed to the number of units.

New serviced apartments, such as Lanson Place Bukit Ceylon (150 units) and Ascott Serviced Residences in KL Sentral (143 units), are scheduled to open this year. Outside KL, Citadines D'Pulze Cyberjaya (232 units) is expected to open in 2014 while Somerset Damansara Uptown (200 units) in Petaling Jaya opens in 2016. The average occupancy rate of serviced apartments in Kuala Lumpur in 2H2012 was 73%, up from 70% in 1H2012 and 72% in 2H2011. ARR stood at RM287 compared with RM280 in 1H2012 and RM282 in 2H2011.

As at Dec 31, 2012, an established serviced apartment brand in KL city recorded an ARR of RM497 while the ARR for serviced apartments in Mid Valley City was RM469.

Previndran Singhe, CEO of Zerin Properties Sdn Bhd, notes that serviced apartments have gained in popularity of late, especially among business travellers and families, as they are less expensive than hotel rooms.

However, he says this will not hurt the hotels as they cater for travellers who prefer more sophisticated services and amenities. "In this respect, we hope the government will regulate this segment of the hospitality market so that serviced apartments are only used for long stays of up to seven days. This will ensure the sustainability of both segments."


This story first appeared in The Edge weekly edition of Mar04-10, 2013.