PENT-UP DEMAND BOOSTED HOTEL RATES IN EARLY 2023, THOUGH OCCUPANCY ROSE MORE SLOWLY

After a strong rebound in late 2022 amid the staggered reopening of some major regional economies, the Asia Pacific hotel market has finally emerged from its hibernation. The release of pent-up demand during the early part of 2023 boosted hotel room rates significantly, and ten of the 14 prime hotel markets in the region recorded growth during the first six months of the year. Local room rates rose above pre-pandemic peaks in many markets, with Tokyo leading the expansion with a bumper 122% YoY rise while others including Seoul, Hong Kong SAR, Taipei, Beijing, Ho Chi Minh City, and Hanoi also witnessed room rate hikes of 20% to 40% YoY.

While room rate rises were driven by the influx of international tourists and their ‘revenge spending’, they also reflected a lack of capacity in many areas including staff shortages, limited flights, rising fuel prices and operational costs as post-pandemic inflation took hold. As such, the recovery in occupancy has been much slower than expected, with most markets in a range of 60% to 80% in 1H/2023 compared with the 70% to 90% levels recorded pre-pandemic. It should be remembered that major economies in the region were some of the latest worldwide to relax border controls.

In terms of volume, international tourist arrivals are projected to reach 56% of 2019 levels in 2023 and 84% by 2024 for the Asia Pacific region according to Oxford Economics. Mainland Chinese travellers, who used to be the largest source market for the region, have been slow to return due to visa restrictions, limited airlift capacity, and increasing travel costs. The passports of about 20% of Chinese travellers expired during the COVID-19 period based on Mckinsey estimates and while renewals are now possible, the backlog and the subsequent wait times has further delayed any recovery.