A Luxe Rescue

The Chao Phraya riverside now has the biggest share of top-end rooms, with investors scanning the area for more opportunities.

The high-end hotel segment is going to get crowded in Bangkok, but developers are not worried about stagnant room rates.

Riding the skytrain in Bangkok, the deeper the rail reaches into the heart of the city, the more highrise buildings stand shoulder to shoulder. Within a stone’s throw, there are several luxury hotel brands, with high price tags to match.

By 2022, first-class hotels will dominate future supply in downtown Bangkok, making up 27.2%, according to STR Global.

But the rate will still be cheaper in Bangkok than for the same brand in Singapore or Manila, as the average room rate for hotels in Thailand has remained stagnant for more than a decade.

Bangkok’s hotel occupancy rate for the second quarter of 2019 was 72.9%, down 1.9% year-on-year. The average daily rate fell by 0.6% to 3,257 baht, while revenue per available room fell by 3.1% to 2,365 baht.

The Chao Phraya riverside, once a hub for luxury hotels (hosting the Mandarin Oriental and Shangri-La), faces a new challenge from the Ratchaprasong district, which has some 8,000 rooms on offer.

A new competitor in the city centre is Rama IV Road, with two mixeduse projects – Dusit Central Park and One Bangkok – scheduled to open partially in three years. The road will experience a makeover when they are complete in 2024 and 2026, respectively.

Aliwassa Pathnadabutr, managing director of CBRE Thailand, said the average room rate of luxury hotels in Bangkok remains in a lower tier relative to peer countries because of market competition. The factors that lure relentless investment in hotels here is a combination of affordable prices and the nature of the city, which is hospitality-driven and service-oriented.

These are magnets for tourists and, consequently, invite more competition, Ms Aliwassa said.

DIVERSIFICATION

Another factor to watch is land prices, as plots in prime areas are expensive, requiring hotel developers to use the latest technologies to maximise space.

Investors are scanning for potential areas, and the Chao Phraya riverside now sees the biggest share of top-end rooms. Classic hotels are competing with new luxury rooms under the umbrella of mixed-use projects.

Although the average daily rate of riverside hotel rooms is higher than in the central business district, the gap is not big and the occupancy rate is softer.

The luxury segment is at risk if the number of guests doesn’t rise to match the growth of new supply, Ms Aliwassa said . Projects that will struggle in a competitive market are those that lack differentiation and style, she said.

The only segment that is still intact is ultra-luxury hotels, whose location makes less of a difference, both in terms of average daily rate and occupancy, because they cater to the needs of high-spending guests looking for unique offers, such as extreme levels of service and new experiences, Ms Aliwassa said.

The luxury hotel market in Bangkok will likely continue to grow, but development will shift location, she said.

“In recent years, we are seeing that the trend is a return to the riverside, with the Four Seasons, The Capella and the Aman Resort Bangkok strengthening the area’s potential,” Ms Aliwassa said.

MARKET SHIFT

Even high-end brands already rooted in Bangkok want to upgrade their offerings to top-of-class.

Patrick Basset, chief operating officer of Accor for Upper Southeast and Northeast Asia and the Maldives, said the trend of luxury is growing in Bangkok’s central business district.

Accor will open the first Orient Express hotel in the King Power Mahanakhon Building, equipped with 154 rooms, later this year. The company wishes to drive the room rate to 7,000-9,000 baht a night, in line with the same tier of hotels downtown.

In the recent past, the price of luxury rooms in Bangkok varied from 4,000-7,000 baht on average, with a few riverside hotels pushing the room rate to 12,000 baht, Mr Basset said.

Accor has about 650 upscale-to-luxury hotels in its portfolio after a number of acquisitions in the past three years, including Fairmont and Raffles. Of the 650 hotels, 350 are luxury properties for the French company, the second most in the world.

In Thailand, Accor operates 86 hotels and has 13 projects in the pipeline. This year, five new hotels will be added in the country. Thirteen hotels are in the luxury category under the brands Sofitel, Pullman and Grand Mercure.

The parade of five-star accommodation in Bangkok isn’t restricted to hotels. There is a fierce rivalry in the branded residences segment, seeing various brands fighting within the same project.

Along the riverbanks, Iconsiam will feature The Residences at Mandarin Oriental, a luxury residence, as well as its homegrown development, 379 units at the Magnolias Waterfront Residences.

In the King Power Mahanakhon Building, The Ritz-Carlton Residences share the same roof with two hotels. In Dusit Central Park, a 389-room tower will serve long-stay guests at Dusit Residences and Dusit Parkside, both managed by Dusit International.

Mr Basset said branded residences and extended stays are an upcoming market to watch in terms of new development.

There is a possibility that chain hotels will combine with prestige hotel brands to offer long-stay residences to guests looking for higher-end service, he said. This combination will cater to rising demand from people looking for more comfortable accommodation for longer than a week.

Accor signed up for its first residential project in Thailand with the brands MGallery Residences and MontAzure in Phuket, Mr Basset said.

HIGHER SUPPLY

Instead of seeing competition as a threat, Suphajee Suthumpun, group chief executive at Dusit Thani Plc, a co-developer of Dusit Central Park, hopes all stakeholders in the industry will expand the business together, following the path of Shanghai.

She believes that increasing supply in the next 3-5 years will not hurt the luxury market in Bangkok.

Shanghai once struggled with stagnant room rates. But when a string of four or five new luxury brands worked hard on marketing, the whole market saw the average room rate double, Mrs Suphajee said.

“There are a few reasons not to worry about an oversupply of luxury hotels in the central business district,” she said. “Existing hotels will help to nurture the market to a healthy level. This is the right timing for a future project, with more planned in the next three years.”

But the short-term tourism crisis should not be overlooked by the government, she said. Thai hotels cannot avoid headwinds from the US-China trade war and geopolitical tensions between countries, such as the Hong Kong protests and unease in the Middle East.

Thailand has extra weight to carry, with baht appreciation stifling tourism arrivals in the first half this year, though Mrs Suphajee hopes the government’s tourism stimulus will improve the situation.

The sustainable way to increase the market, she said, is strong cooperation between the public and private sectors to make a new central business district a world-class iconic attraction, including a destination for Mice (meetings, incentives, conferences, exhibitions), and to create opportunities for the whole area.

The construction of transport infrastructure will help Thailand maximise capacity to cater to new demand in the future, Mrs Suphajee said.

“A lot of private investments are focused on the Mice market and building a facility for meetings and conventions,” she said. “Dusit Central Park will feature 250 luxury hotel rooms, using its old name Dusit Thani Bangkok.”

When the new Dusit Thani Bangkok opens, the average room rate will double from that of the old hotel, she said.