It's All About The Money
The Phuket Gazette.
This strange and difficult year is finally coming to an end, but there's one question begging to be asked: where is this zig-zagging turbulent roller coaster ride going to lead?
Let's take a few moments to reflect on the general health of luxury hotel offerings to see what may lay in store for those with more money then sense. As always, if you have to ask how much it costs, then perhaps this is not your demographic.
Despite the global financial crisis and continued fears both here and abroad of a drawn out recession, depression or whatever, since our mid-year hotel pipeline update more than 45 new hotels are under development in Phuket.
I like to compare these developments to the running of the bulls in Pamplona, Spain, both defy logic and reason, but all joking aside, the broad resort market is undoubtedly headed for a serious oversupply hangover.
We've seen the effects of the mid-market property supply and demand imbalance over the past 24 months with slowed overseas demand, continued building and rentals or resale's displacing new project sales. Hotels are continuing to gear up in similar fashion and the average room rates and profitability are following suit.
According to Jonas Ogren at leading hospitality trend tracker STR Global, year on year occupancy in Phuket for the period of January though September declined 18.8 per cent compared to 2008, average room rates plunged 14.3 per cent and the important revenue per available room (RevPAR) was down 30.5 per cent.
For 2009, this equates to an overall occupancy of 52.9 per cent across the island and average rate of 3,786 baht per night. While fourth quarter figures will raise these as we come into high season, there is little doubt that both poor market sentiment and increasing supply are seeing rates hit hard.
Somewhat bucking the trend though is the luxury tier, primarily represented by Trisara, Amanpuri and Banyan Tree. For the most part, this segment of the market has performed as well as it did in 2008, while some cases have actually been more successful this year than they were last.
Rounding off this segment, Sri Panwa, Six Senses Yao Noi and Anantara are all working to towards retaining a semblance of sanity in rate protection strategies and are taking a more long-term view than many in the wider upscale and midscale market.
Looking forward, the pipeline fundamentals continue to look strong as projects such as The Yamu, Jumeirah Private Island and Taj Exotica are all lagging behind projected opening dates. While these developments had substantial residential offerings with a hotel-managed overlay, priorities have been managed in order to mitigate risk through project pre-sales.
New supply into this segment is now primarily limited to the Andara Residential Resort opening late this year and the recently launched Paresa, both located on Millionaire's Mile in Kamala.
Looking further into the future, the relatively high barriers to investment in a luxury villa resort per unit remain. This can often run from US$600,000 to over US$1 million. The lack of prime development sites also is a key factor.
Regionally, other destinations are entering the mixed use fray. Bali has recently witnessed the launch of the US$6 million and above Bvlgari Residences adjacent to the existing resort, while the Raffles Residences in Danang Vietnam are now plowing ahead, following a change in ownership.
In the provinces surrounding Phuket, the competition is set to rise with the December opening of Phulay Bay, a Ritz-Carlton Reserve hotel, in Krabi and a second Ritz-Carlton Reserve property, Similan Beach in Phang Nga's Tha Sai area, breaking ground as this article is being written.
Closer to home, large sites like Emerald Bay and Cape Paradise on the Patong headland, a large plot in Koh Siray as well as the venerable Four Season's Rawai continue to loom as possible longer term additions to the inventory. At the moment, it looks that if you do own one type of hotel in Phuket, the high echelon luxury segment is the place to be.
That said, with the continued aging of the current offerings, it will be interesting to see how the new breed of properties will perform. One such example is W in Koh Samui, which will present travelers with a more modern offering and try to lure Phuket's well-heeled visitors to the Gulf of Thailand.
Though much has been written about luxury guilt in these troubled times, the rich continue to travel as will always be the case.