Bali Surpasses Phuket While Hotel Investment Market Flounders

Returning from Singapore a few days ago after attending the Hotel Investment Conference (HICAP) Update I am feeling as battered as Ricky Hatton after getting KO'd in the second round by Manny Pacquaio. In a gathering of top global hotel chains, investors, consultants and fund managers, while the mood was already somber the attitude towards Thailand and more importantly Phuket left me thankful I was staying on only the 4th floor of the hotel.
Unlike Ricky Hatton Phuket went into the year still favored in the race for the premium resort destination in Asia, though 2008 saw more capitulations then the withdrawals from my ATM card. While the yellow shirt demonstrations and resulting closure of airports in both Bangkok and Phuket were huge blows we still managed to pick ourselves up off the canvas and perhaps clawing onto our opponent make it to the end of the round. What is seemingly apparent is the Bangkok riots and attempted assaults on the countries Prime Minister by the red shirts together with Pattaya's Asean debacle were a firm TKO for tourism and the short term economic environment.
Peering into the dark and unknown future of the remainder of the year Robert Hecker from Horwath who organized the conference summed it up best in that perhaps one of the best business models would be selling 'I survived 2009' t-shirts. Consensus from a variety of experts focused on the entire region and was summed up best that for all of Asia this year is a write off and its best to focus on 2010. Whether we are in a 'v' or a Bull Run 'w' market most experts concede that we continue to tread in murky water and there remains no real indication of where the bottom actually is.
Which now brings us to the subject at hand, how is Bali faring in the eternal struggle of destination supremacy. According to figures presented by Jonas Ogden of Smith Travel Research for the Q1 2009 Bali saw leading indicator RevPAR increase by 22.3%, while Phuket declined by 36.6%. The only two major markets in Asia which saw increases were both in Indonesia with Bali and Jakarta rating in. What's even more telling is this period was high season for Phuket whereas Bali's holiday market comes during the coming Australian winter season. Average room rates for Bali rose in excess of 40% with Phuket retracting by a similar percentage. Occupancies on the former also registered higher figures then the later.
One of the key messages from Jonas was on the perils of discounting and how it often takes years to recover once rates plunge. It was pointed out that hotels set rates and not consumers so ultimately it's a controllable point for management. In the United States after the tragic event of 9/11 it took six years for rates to recover as a result of panic selling with resulting rate reductions.
Horwath's Robert Hecker also voiced risk management concerns in that a global recession was the least of Thailand's concerns for the moment. The protests hitting the streets and the international news, along with important tourism infrastructure such as hotels and airports was a huge blow. A return in 2010 to positive growth whereas negative GDP growth in the region of minus 3% was expected this year. Talk of recovery continued the big "if' word at the moment.
Much of the premise of a recovery is the requirement of investment and this is primarily overseas institutions. With debt currently being sidelined and some transactions being based on cash, with purchasers looking to leverage the asset once more reasonable terms exist there looks to be little action on this front. Mike Batchelor of leading hotel transactional firm Jones Lang LaSalle Hotels pointed out that the volume of sales in Asia Pacific declined from over US$12 billion in 2007 down to just over US$2 billion in 2008. In 2009 the market continues to be flat with most transactions taking place in developed the developed markets of Australia and Japan though China is seeing activity.
While distressed is becoming a popular term there are in fact few distressed sales and perhaps what will stimulate sales is less of a reliance on these eventuality but from 'stressed' sellers who will move at the right price. Debt remains limited in the market with full equity deals being done. With funds and institutions not current in play looking into the crystal ball on who will investors be for hospitality assets it's looking to be high net worth individuals and families based in the region who often control conglomerates. As to the vacuum left by firms such as Lehman's, private equity and hedge funds there is no trend on who if anyone is going to enter this sector for the time being.
With all that said at done, it was interesting going to a recent IBAP event and hearing some 'good news' story on what businesses were actually trading well with some pointed to a surge of revenue going into golf lessons by bored executives taking some time off to polish up their links game. While I'm not going to rush out and buy one of those "I survived 2009' t-shirts, I have to saying the quick next year comes the happy most of us will be.