Let’s take a basic economics test: What do you get when you mix lower demand with higher supply? Lower prices is what you would get.
According to a recent article by Bloomberg, the revenue per available room in Singapore’s hotels has fallen by 7.4% in June to S$179.40 per night, which is the lowest seen since 2010. This is due to a combination of higher supply of new hotel rooms and much shorter trips made by visitors this year.
Some hospitality-focused real estate investment trusts and companies in Singapore’s stock market may be feeling the heat as well.
The Singapore-focused OUE Hospitality Trust (SGX: SK7) saw its revenue and net profit for the first half of 2016 drop by 3.2% and 15.7% year-on-year, respectively. Far East Hospitality Trust (SGX: Q5T), another Singapore-focused trust, also had a similar experience, with its revenue and net profit falling by 4.6% and 35.4%, respectively, over the same period.
These numbers do not look like good news for the hospitality and tourism industry in Singapore. Moreover, with the recent Zika virus outbreak here, the situation may not see any improvement soon.
The weakness in the hospitality industry may not be just a Singapore-specific issue. In the first-half of 2016, Mandarin Oriental International Limited (SGX: M04) saw its profit drop by 29% to just US$11.5 million. Mandarin Oriental operates hotels and serviced apartments across the world.
Participants in the hospitality industry in Singapore may be facing weaker demand ahead. That means they would have to weather through lower hotel rates for a while. With the Zika virus outbreak, it might be unclear when the clouds would clear for the industry.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.