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Hotels closing down. End of the tourism industry with COVID-19?

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Someone showed me the few viral articles about hotels closing down and says that it is the end of the road for the tourism industry. I asked, ‘you mean for a period of time?’ He answered, ‘no… just look at all these hotels, they are all closing down. NO MORE.”

I think it’s okay, everyone can have their own views. I prefer to ask all of you who are reading this article now. “Will you stop travelling in the future, when travelling is allowed again?” An image below show what you may miss if you stop travelling… The answer is a direct reflection of whether these hotels which have closed down would reopen in the future. The hotel may not even be reopened by the same owner but someone else would reopen these hotels once the demand comes back.

This is a simple business demand and supply question. Continue to open when the demand is so slow and we could not see the light at the tunnel yet is not a clever business decision. Closing it down and doing something else first and then make a comeback in the future when demand returns is a good business decision. It’s okay, I am just a blogger. Let’s listen to what the consultants say. They will even provide a survey result too.

tourism industry
Photo by James Wheeler on Pexels.com

Press Release by Knight Frank Malaysia.

Knight Frank Hotel Survey reveals positive sentiments as investors remain optimistic towards Malaysian hospitality sector

2 February 2021, Malaysia – Knight Frank Malaysia, the global property consultant, launches the Malaysian Hospitality Investment Intentions Survey. The survey analysed the investment perspectives of hotel owners, operators and owner operators, providing an insight on investment demand, investor preferences and pricing. The survey also shares how COVID-19 has impacted the sector and what measures could be taken to provide some much needed relief. The survey was conducted in the fourth quarter of 2020.

The survey reveals that 14% of the respondents anticipate buying hotel assets within the next two years, whilst 16% look to make an acquisition even sooner within the next 6 months despite the pandemic. 

Source: Page 4Malaysian Hospitality Investment Intentions Survey 2021

James Buckley, Executive Director of Capital Markets, Knight Frank Malaysia, says, “Well capitalised, shrewd investors are looking beyond the pandemic and see this as an opportunity to acquire prime hotel assets at more reasonable pricing. We believe prices for Malaysian hotels that trade will reflect a 10-30% discount from their pre-COVID values.”

In Southeast Asia, Malaysia ranked 3rd as the most attractive country for hotel investment, after Thailand and Singapore. Several criteria were highlighted as important factors when choosing to set up a hotel operation in a country. 89% of the respondents indicated that tourist arrivals and flight accessibility is crucial in their investment decision making process. This was followed by friendly government initiatives which play an important role in motivating hotel operations and investments as it cushions the impact of market sentiment.

James Buckley adds, “Tourism is an important sector as it is the third largest contributor to the economy and employs about 3.6 million people. Before the pandemic hit, it contributed a total of RM86 billion in tourist receipts from about 26 million international visitors in 2019. Upgrading / expanding and improving direct international flights to Penang and Langkawi in particular would provide a real boost to tourism.  Langkawi is a fantastic tourist destination with great potential to grow its international tourist arrivals and receipts and compete on the same footing as Phuket, Bali and the Maldives. To achieve this, it needs to improve its regional flight accessibility. Before the pandemic hit, there were only direct international flights from Guangzhou, Singapore, Phuket, and Doha.”

Location is considered the most important factor by respondents when investing in a hotel. Hotel performance is highly driven by guests who value hotel locations. The next factor considered by 72% of respondents was the expected return / yield. Many investors are now seeking higher returns to offset the risk of investing in the sector during the pandemic with 36% of respondents targeting a net yield of above 7%.  As a consequence in 2020, the volume of hotel transaction across Malaysia fell by 36% compared to the 10-year annual average. The availability of bank financing for hotel transactions has been significantly curtailed which has also played a factor.

Source: Page 7Malaysian Hospitality Investment Intentions Survey 2021

Justin Chee, Executive Director of Valuation & Advisory, Knight Frank Malaysia, says, “During these challenging times, investors are increasingly looking for yield accretive assets and as shown by the sentiment survey; majority of respondents (36%) expect a net return of above 7% from the hotel asset class. It is important to note that based on the past few hotel transactions (in the past 5 years) hotels in Malaysia were generally transacted at net yields of about 4% to 6% and there is definitely a mismatch between the expected return and the selling prices of hotels.

What we may possibly see during this pandemic and the fallout of the COVID-19 impact on the hospitality sector is the bridging of gap between the two as vendors are getting more realistic with their hotel values and asking prices.”

Malaysian Hospitality Sector Outlook in 2021

Almost half of the respondents remain positive about the hospitality sector outlook in the next 12 months with 45% feeling that the sector is on its way to recovery, albeit contingent on the progressive roll out of the vaccine and opening up of international travel restrictions.

The Malaysian government has provided wage subsidy to the hotel sector to cushion the impact of COVID-19, however the industry has put forward other ideas to assist the sector. These ideas include temporary reclassification of electricity tariffs, tax cuts and temporary moratorium on quit rent.

Judy Ong, Executive Director of Research & Consultancy, Knight Frank Malaysia, says, “However, with the country now under MCO 2.0 with exception of Sarawak following resurgence of COVID-19 cases, the road to recovery for the battered tourism industry will be long and hard. Government measures and incentives to support the industry may be too little and too late as we continue to hear of more hotels shutting down either temporarily or permanently.

“Hotels that are still in operations are aggressively promoting staycations and attractive ‘work from hotel’ packages as well as food delivery service to stay afloat and support employment.

Moving forward, once interstate travel is allowed, we believed that domestic tourism will lead the way to recovery supported by the recently launched National Tourism Policy 2020 – 2030, which aims to position the country as among the top ecotourism destination.”

— end of the press release —

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Next suggested article:  Henry Butcher Malaysia Perspective 2021

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