The economic impact of the pandemic is hitting Phuket hotels as 73% of new projects are put on hold
Thailand’s ailing hotel sector is showing increasing signs of fatigue as the global pandemic enters its third year. Nowhere is this more evident than on the resort island of Phuket, where over 73% of new hotel developments are either dormant or on hold.
According to the newly published Phuket Hotel Market Update 2022 by C9 Hotelworks Hospitality Consulting, the island’s once robust hotel pipeline now has owners suffering from a “fear factor” as they continue to be plagued by a volatile market and unclear future outlook. Negative sentiment and tight liquidity have impacted the development, which has 33 hotels with 8,616 rooms facing an unknown future.
Looking more closely at the pipeline data, 55% of hotel projects are mixed-use or hotel residences with rental-based investment plans targeting individual investment buyers. Given the economic climate, C9 research shows that some of these real estate-led hospitality projects are unlikely to return to the pipeline.
While glittering tourism campaigns focused on quality vs. quantity are the new mantra across the country, reality is biting hard on an island that has grown from over 9 million passenger arrivals at Phuket International Airport in 2019 to just over 900,000 in 2021 has increased. The whopping 90% drop, coupled with the fact that there are already 1,786 registered tourism businesses and 92,604 hotel rooms on current supply, means empty beds that tourists need.
Referring to the situation, Bill Barnett, Managing Director of C9 Hotelworks says: “Two years ago over 40% of the island’s international visitors came from either China or Eastern Europe including Russia. While I am asked daily when Phuket will recover, the truth of the matter is that we are postponing our estimates of a cyclical return to 2025.
“The elephant in the room right now is China. The conundrum is that while I fully expect Phuket’s stabilized numbers to return given its favorable geographic location, tourism-focused infrastructure and proven airlift capacity, macropolitical and economic issues cloud the near-term horizon.”
Phuket led all of Southeast Asia in a remarkable effort of widespread vaccination and the groundbreaking sandbox re-entry program. But a look at the current situation, which has seen a return to seasonal trade and the departure of winter snowbird travelers, has the island now looking for substitute markets. While other regional neighbors such as Vietnam, Indonesia and the Philippines roll out quarantine-free travel, Thailand remains in an uncompetitive position given its ailing Test & Go process.
Hoteliers in Phuket have been quick to deal with damage control from the Ukraine-Russia crisis, but most of the Russian market historically falls away in March. Three notable source markets expanding the airlift to Phuket are Australia, India and the Middle East, and these remain bright spots, although none have shown traffic to match China’s mass market.
While Phuket’s tourism economy has weathered the first two years of the pandemic largely intact, says C9’s Bill Barnett “The remainder of 2022 and beyond is already seeing a rapid escalation of hotels for sale. Most of these are not at very distressed levels, but what does suggest is that legacy investing sentiment in hospitality assets is seeing a changing of the guard.”
“It is expected that the number of Thai hotel owners and also foreign investors exiting the sector will increase. C9 believes that the slowdown in the pipeline and high activity in the transaction market is not entirely bad and is likely to reshape supply and demand in the medium term to return to a more solid, rational and less speculative market.”
Another shift in attitudes among island hotel owners has been a wave of independent hotel to branded conversions as many of the top performing hotels were converted to branded hotels amid the reopening of Phuket’s sandbox and the growth in domestic travelers. Whilst another outcome has also resulted in a number of internationally managed properties being converted from management to franchise. This reality of owners operating under global brands and a new influx of white-label management was a trend that was coming anyway and was only accelerated by the pandemic.
Despite the real reality of Phuket’s tourism journey back to the future, the backstory was a large-scale exodus of hospitality and service workers from the industry. With so many stops and starts, hotels and shops opening and closing, the luster of the tourism title “Amazing Thailand” has been lost on a generation of workers.
While the level of business has continued to grow at a moderate level, the industry continues to be plagued by staff shortages and perhaps the greatest challenge facing Phuket hotels is to regain their greatest asset – the hotel staff to serve tourists when they eventually to return. However, the same comment currently applies across Southeast Asia and the world, meaning doing more with less staff must be the new tourism norm.
Download C9 Hotelworks Phuket Hotel Market Update 2022 – CLICK
About C9 Hotelworks
C9 Hotelworks is led by Founder and CEO Bill Barnett, who brings over 35 years of experience in the Asian hospitality and real estate sectors. Prior to founding C9 in 2003, Bill held senior positions in hotel operations, development and asset management. He is considered a leading global authority on hotel residency and has sat in almost every seat to do with hospitality and real estate. Bill promotes industry insight through regular conference presentations at key events and contributes to numerous industry publications. Contact for more information www.c9hotelworks.com.
Managing Director, C9 Hotelworks
+66 (0)8 1956 1802
C9 Hotelworks Ltd.