Mimi Hudoyo examines why having more hotels is not the answer for some destinations in Indonesia
The Indonesia Ministry of Tourism is focusing on developing homestays to anticipate the influx of travellers, but sentiments at the recent Hospitality Investment Conference Indonesia in Jakarta suggested that some areas are facing a room oversupply and price wars.
A STR report placed Indonesia in second place after China in Asia-Pacific in terms of hotel rooms in the pipeline. By March 2017, there were around 60,000 rooms in the pipeline in the five main areas of Jakarta, Bodetabek (Bogor-Depok-Tangerang-Bekasi, the cities surrounding Jakarta), Bali, Surabaya and Bandung.
In 1Q2017, supply in Bali rose 3.9 per cent while demand grew 11.6 per cent, the latter in part driven by the visit of Saudi Arabian King Salman and his huge entourage in March.
A closer look at the island’s performance reveals varying supply and demand across Bali, said Christy Megawati, business development manager of STR. “In areas like Nusa Dua and Tanjung Benoa, where some luxury properties are, performance is more stable. The Kuta-Legian-Seminyak area struggles as competition is fierce.”
Although arrivals, especially from China, continue to grow, it is not enough to fill rooms in the Kuta-Legian area, driving prices down, she added.
In Bandung, room surplus is also an issue. “The hotels there used to have government meetings (to fill the working days) but when the government stopped public offices from organising meetings outside their premises (in 2015), they lost a big chunk of the market,” Christy said.
While the government has since loosened the restriction, the market has not bounced back to pre-2015 levels. “The
city is now (primarily) dependent on weekend travellers, and with a large room supply, visitors are (scattered) everywhere (pressing) growth in occupancy,” she said.
Samudra Hendra, owner of Milestone Pacific Hotel Group, an Indonesia hotel management company, said many Indonesian investors want to build a hotel in their hometowns to give back to society.
“We need to convince them, however, to build the right model in the right place. If the destination needs a three-star property but you build a four-star, you will end up selling at three-star rates,” he remarked.
What Milestone Pacific Hotel Group has been doing, according to Samudra, is investing where there is infrastructure development, including tertiary cities.
While this is a sensible approach, he acknowledged that when a hotel investment is successful, more would follow.
“The thing is that the local governments do not know when to stop issuing licences, so price competition will ensue,” he said.
This article was first published in TTG Asia June 2017 issue. To read more, please view our digital edition or click here to subscribe.