Slowing demand, strong pipeline create 'perfect storm' for Phuket, Thailand

Phuket, Thailand
Phuket, Thailand, has a hotel has a development pipeline of 15,348 guestrooms set to open during the next five years. Photo credit: Getty Images/TayaweeSupan

In its "Phuket Hotel Market Update Mid-Year Edition," consulting group C9 Hotelworks said that the island, which is part of Thailand, has a hotel development pipeline of 15,348 guestrooms set to open over the next five years, representing total supply growth of 18 percent. At the same time, demand appears to be falling as visitor numbers dwindle, creating what the report calls a "perfect storm" for the island's hospitality market.

During the first four months of 2019, ranked as high season, year-over-year international passenger arrivals at Phuket International Airport dropped 3 percent, while the domestic segment was down 6 percent. Looking into the data, the first half of 2018 had been a record-setting tourism period while the second half experienced a sharp decline due to the retraction of the Mainland China market. From January through May 2019, visitor numbers from Mainland China declined 19 percent. Visitor numbers from Russia also were lower than they were last year.

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

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Hotel performance for the first half of 2019 has mirrored the current downward demand trend, according to STR data. This reflects a 12 percent drop in revenue per available room that the consulting firm blames on lower marketwide occupancy. While May and September are the two lowest months for Phuket hotels, July and August are projected to experience boosts in occupancy. Still, the room rates for the off-season will "undoubtedly suppress overall rate growth during the year."

The report also highlights the growing influence of hotel branded residences on the Phuket accommodation market. More than 50 percent of the incoming pipeline—or 8,337 units—are currently being developed, the study claims, the majority of which are condominium properties affiliated with international hotel groups via management or franchise agreements. In May, the former Journey Hub Hotel Phuket reopened as the Oakwood Hotel Journeyhub Phuket.

Despite the drop in Chinese tourists, a number of Mainland real estate conglomerates have entered the island property sector.

With the development of the new Greater Phuket airport in Southern Phang Nga, the long-term forecast for the island remains positive. Hotels in Phuket could experience a similar cycle to Bali's from 2014 through 2018, and new supply eventually could be absorbed on a medium-term basis. In the shorter term, however, demand remains a key risk factor affecting operators and owners.  

Phuket Hotel Pipeline

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In October, visitor arrivals were down 90.4 percent compared to 2019 and hotel occupancy was below 20 percent.