Resurgence in the hospitality segment of real estate

The Philippines welcomed 5,450,557 international visitors in 2023, surpassing the Department of Tourism’s (DoT) target of 4.8 million by approximately 650,000 visitors.

Domestic tourism expenditure also saw a remarkable increase of 72.3%, rising from P1.55 trillion in 2022 to P2.67 trillion. According to Tourism Secretary Christina Garcia-Frasco, there is a growing trend among Filipinos to explore and travel within their own country, driven by a heightened interest in local and “lesser-known” destinations.

The achievements in both international and domestic tourism have had a positive ripple effect on the hospitality and real estate sector. According to a report by Colliers, hotel occupancies and average daily rates (ADRs) have seen significant boosts as a result of the increased tourist influx.

In fact, the number of international arrivals in the second half of 2023 reached 5.45 million. Meanwhile, the average hotel occupancies in Metro Manila reached 65% in the second half of 2023, up from 61% in the first half, attributed to holiday-induced spending and a surge in foreign arrivals in the fourth quarter of 2023.

Colliers stated that four-star hotels posted the fastest average daily rate (ADR) increase in the second half of 2023. Five-star hotels continued to see year-on-year (YoY) growth due to sustained demand for leisure and in-person corporate events.

Furthermore, a notable improvement in occupancy rates is seen in 2023 due to increased holiday spending and the sustained demand for in-person events. The end of 2023 saw occupancy rates at 65%, with an ADR of US$80.

On the other hand, the Philippine tourism and hotel market is estimated to be worth US$2.75 billion by the end of 2024, according to the forecast of Mordor Intelligence. This figure is expected to reach US$3.37 billion by 2029, growing at a compound annual growth rate (CAGR) of 4.15% during the forecast period.

Similarly, Colliers projected average hotel occupancy to reach 68% by the end of 2024, anticipating more international tourists despite substantial new hotel room completions in the capital region. Projections indicate 7.7 million arrivals for the full year 2024 and an annual average of 8.1 million arrivals from 2024 to 2026.

By the end of 2024, the occupancy rates are expected to rise this year to 68%, with ADRs reaching US$85. This upward trend is projected to continue, with annual average growth leading to an ADR of US$102 and an occupancy rate of 70% by the end of 2028.

The growth in average daily rate and occupancy rates is primarily driven by leisure demand, as foreign arrivals approach pre-COVID-19 levels. The report also noted that ADRs grew by 10.4% in 2023, expected to sustain growth with a 5.1% increase by the end of the second half of 2023 and a 6.0% year-over-year increase by the end of 2024.

In addition, the outlook for 2024 forecasted a record-high new supply of hotel rooms, with the Bay Area accounting for nearly half of this expansion.

Specifically, 1,797 rooms were completed in the second half of 2023, and a substantial 5,100 rooms are projected to be completed in 2024. From 2024 to 2026, an annual average of 2,300 rooms is expected to be added to the market.

The significant increase in supply is expected to cater to the growing demand, ensuring that the hospitality sector can accommodate the influx of tourists and business travelers. Colliers reported that the surge in foreign visitors is anticipated to further elevate hotel occupancies and ADRs, contributing to a vibrant and dynamic hospitality market.

Opportunities

Post-pandemic recovery has transitioned into a period of growth because of the increasing occupancies and daily rates. The sector is now focused on sustaining these gains and drawing further interest from stakeholders, including local and foreign travelers, hotel developers, and operators.

According to Colliers, corporate events, property exhibits, product launches, and summits are essential for driving hotel occupancies. Such events are primarily hosted in hotels’ meeting rooms and exhibition centers.

Therefore, hotel operators are recommended to capitalize on the return of these in-person events by offering attractive packages to corporate clients. For instance, collaborating with the DoT, which is actively enticing international organizations to hold their events in the Philippines, can further boost this segment. Especially, the Philippines’ positioning as a key MICE (meetings, incentives, conferences, and exhibitions) destination in Asia is expected to result in a surge of international MICE events, particularly in Metro Manila, Clark, Cebu, and Davao.

Moreover, hotel operators should collaborate with the government to attract more tourists, likely to increase hotel stays and leisure-related expenditures.

The “Build, Better More” initiative by the government, on the other hand, offers significant opportunities for property firms to expand their leisure foothold. The improvement of road networks and airports leading to tourist spots will further enhance the accessibility of these areas. Developers with land near major airports and mass transit systems should consider developing new hotels and complementing them with MICE facilities. — Mhicole A. Moral