With a fast-growing economy and an aggressive tourism marketing campaign, the Philippines has seen growth in the influx of local and foreign tourists, enjoying an average growth rate of 10.3% the past three years. According to the Department of Tourism (DOT) projections, this rate is expected to reach 16.2% in 2016, in anticipation of the ASEAN integration that is estimated to generate an additional 2 million visitors in 2015.
Opportunities in the hotels sector
The tourism industry's growth momentum is opening up several opportunities. Currently, aggressive room pricing is being experienced in the hotel industry due to the relatively low supply of hotel rooms compared to its Asian competitors. Aside from putting pressure on prices, this shortage also increased competition for available assets among investors and has spurred developments from major and 2nd-tier property developers in the country.
Why invest in Philippine hotels now
While global growth stays in low gear, portfolio managers and investors remain in search of alternative markets that offer good yields. The Philippines' hotels and leisure sector offers an opportunity for investors to take advantage of the country's fast-paced growth and get higher yields compared to what's currently being offered by traditional markets.
1. Strong demand
The Philippines' visitor economy is growing strongly, particularly in business and events travel as well as Asian tourism:
- 4.68-million foreign visitors in 2013 (9.56% growth from 2012)
- $4.4-billion tourism revenues (15% growth from 2012)
- Top visitors are from Korea (1.1-million), USA (675,000), and Japan (434,000)
- Occupancy rate in Manila alone is already at 64%
2. Room to grow
The country's hotel market is not keeping up with demand, opening opportunities for investors:
- Assuming 8.5-million tourist arrivals by 2016, the Philippines needs more rooms. As of 2013, there are only 23,181 rooms in Manila alone, falling short of the requirement which is at 47,000 hotel rooms.
- There is also room for expansion in other areas. Decreased layovers in Manila due to increasing number of international flights to airports in other regions show that there is a need to expand in other major tourist destinations as well.
Image source: Manila Bulletin
3. High growth of hotel rates
- Average five-star room rates has grown by 3.7% in 2013, reaching $333 per night
- Four-star room rates increased by 1.1% to $273 per night
- Three-star room rates increased by 9.5%, showing high demand for high quality accommodation at more affordable rates from local and foreign tourists
- Corporate rates also grew 15% last year
Image source: CN Traveler