C9 warns of stress in Phuket hotel market with pipeline set to spike

Phuket’s accommodation market is predicted to face stress in the short- to medium-term with soaring hotel supply expected to be challenged by declining tourism demand, according to new analysis by C9 Hotelworks.

The Thai resort destination has a development pipeline of 15,348 keys set to enter the market over the next five years, which represents an 18% push in total supply, C9’s Phuket Hotel Market Update Mid-Year Edition revealed.

Villas near Patong beach in Phuket

During the first four months of 2019, considered a high season, year-on-year international passenger arrivals at Phuket International Airport slipped by 3%, while the domestic segment was down 6%.

A boat accident in Phuket that claimed the lives of Chinese tourists had prompted a sharp decline in arrivals in the second half of 2018 after a record first half of the year.

Mainland China remains at the forefront of any discussion about Phuket and the segment continues to be volatile with a 19% decrease registered this year from January through May. Russian arrivals have also declined.

On the upside, the fast-growing Indian market tripled its tourism arrival trajectory during the same period versus 2018.

Hotel performance has mirrored the current trend. Citing STR data, C9 says there is a 12% retraction of RevPAR, driven largely by lower market occupancy.

While May and September are the two lowest months for Phuket hotels, July and August are projected to experience boosts in occupancy. But the reality remains that non-high season attracts significantly lower room rates. This, C9 predicts, will undoubtedly suppress overall rate growth during the year.

The C9 report also highlights the growing influence of hotel branded residences on the Phuket accommodation market. Over 50% of the incoming pipeline or 8,337 units are being developed. Majority of these are condominium properties, with many affiliated to international hotel groups via management or franchise agreements. Despite the drop in Chinese tourists, a number of Mainland real estate conglomerates have entered the island property sector.

Still, C9 maintains that the development of the new Greater Phuket airport by AoT in Southern Phang Nga bodes well for the destination’s long-term tourism performance. C9 surmises it is probable that the current hotel sector will experience a similar cycle that Bali saw between 2014 through 201, and that new supply will eventually be absorbed on a medium-term basis. In the shorter term, however, demand remains a key risk factor impacting operators and owners.

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