The island’s transaction market is heating up as owners grapple with liquidity issues, while overall tourism sentiment is waning.
Thailand’s struggling hospitality sector is showing increased signs of fatigue as the global pandemic enters its third year. Nowhere is this more apparent than on the resort island of Phuket, where more than 73% of new hotel developments are dormant or have been put on hold.
According to data from the new publication Phuket Hotel Market Update 2022 from Hospitality C9 Hotelworks consulting, the once-robust island hotel pipeline now has owners suffering from the “fear factor” as they continue to falter in the wake of a volatile market and unclear future prospects. Negative sentiment and stressed liquidity impacted the development, which saw incoming supply of 33 hotels with 8,616 rooms facing an unknown future.
Drilling down into pipeline data, 55% of hotel projects are mixed-use or hotel residences with buy-to-let programs that target individual investment buyers. In light of the economic climate, C9’s research indicates that some of these real estate-focused hospitality projects are unlikely to return to the pipeline.
While glossy tourism campaigns that emphasize quality over quantity are the new mantra across the country, reality bites hard on an island that has gone from over 9 million passenger arrivals at Phuket International Airport in 2019 to just over 900,000 in 2021. The % drop, coupled with the fact that there are already 1,786 registered tourist establishments and 92,604 hotel rooms in current supply, means empty beds that need tourists.
Speaking about the situation, the general manager of C9 Hotelworks bill barnet said “Two years ago, more than 40% of international visitors to the island came from either China or Eastern Europe, including Russia. While I am asked daily when Phuket will recover, the truth is that we are pushing back our estimates of a cyclical comeback until 2025.
“The elephant in the room at the moment is China. The conundrum is that while I expect Phuket’s stabilized numbers to return given its favorable geographical location, infrastructure focused on tourism and its proven airlift capability, macro-political and economic issues cloud the near-term horizon.
Phuket led all of Southeast Asia in a remarkable effort of widespread vaccinations and the pioneering Sandbox reintegration program. But a look at the current situation which has seen a return to seasonal trade and the departure of winter snowbird travelers dissipating, now has the island on the hunt for replacement markets. While other regional neighbors such as Vietnam, Indonesia and the Philippines are rolling out quarantine-free travel, Thailand remains in an uncompetitive situation given its beleaguered Test & Go process.
Phuket hoteliers were quick to tackle damage control from the Russia-Ukraine crisis, but most of the Russian market collapsed in March historically. Three notable source markets driving air travel to Phuket are Australia, India and the Middle East, and these remain bright spots, although none have demonstrated traffic to match the Chinese mass market. .
While Phuket’s tourism-driven economy survived the first two years of the pandemic largely intact, says C9’s Bill Barnett “The remainder of 2022 and beyond is already seeing a rapid escalation of hotels for sale. Most of them are not at very difficult levels, but this indicates that the legacy investment sentiment in hotel assets is experiencing a changing of the guard.
“The number of Thai hoteliers and foreign investors exiting the industry is expected to increase. C9’s view of the pipeline slowdown and strong deal market activity is that it’s not entirely a bad thing and will likely reframe supply and demand over the medium term as part of a return to a more solid, rational and less speculative market.
Another shift in attitude for island hotel owners has been a wave of conversions from independent properties to brands, as many of the top-performing properties as Phuket Sandbox reopens and traveler numbers grow national concerns concerned branded hotels. While another result also saw a number of internationally managed properties converted from management to franchises. This reality of owners operating under global brands and a new influx of white label management was a trend that was coming anyway and only accelerated by the pandemic.
Despite the bricks-and-mortar reality of Phuket’s tourist journey into the future, the backstory of it has been a large-scale exodus of hospitality and service staff from the industry. Given the many stop-and-go, hotel and business openings and closings, the luster of the “Amazing Thailand” tourism signature has been lost to a generation of workers.
While business levels have continued to grow at moderate levels, staffing shortages continue to plague the industry and perhaps the biggest challenge facing Phuket hotels is regaining its greatest asset – hotel staff to serve returning tourists. That said, that same comment currently applies to all of Southeast Asia and the world, implying that doing more with fewer staff will have to be the new tourism norm.