Sri Lankan hotel rates on the rise despite supply surge

With growing supply especially in Colombo, STR says rates may come under pressure going ahead

Hoteliers have managed to maintain pricing power despite slowing demand for hotel rooms in Sri Lanka, according to an analysis from STR, but growing supply especially in the upper-scale segments could begin putting pressure on rates.

Over the 12 months ending March 2018, Sri Lanka’s supply (room nights available) grew 6.2 per cent, while demand (room nights sold) increased 2.1 per cent.

While this saw occupancy fall 3.8 per cent to an annualised rate of 65.1 per cent, average daily rate (ADR) was up 7.2 per cent to 17,334 Sri Lankan rupees (US$109).

With growing supply especially in Colombo, STR says rates may come under pressure going ahead

“The last few years saw Sri Lanka become very popular with developers,” said Jesper Palmqvist, STR’s area director for the Asia-Pacific region. “Supply growth reached 6.8 per cent last year, and that came with demand basically flat year over year (+0.1 per cent). Hoteliers will need to develop impactful marketing campaigns to increase that demand and avoid a continued occupancy slide.”

Still, overall ADR has seen growth year over year for 30 consecutive months in Sri Lanka. The 1Q absolute level in the metric (19,868 rupees) was the highest for any first quarter in STR’s Sri Lanka database. Occupancy for 1Q grew one per cent after dropping 6.2 per cent for the whole of 2017.

“Hoteliers have been able to increase room costs to counter the declines in occupancy,” Palmqvist noted. “It will be key for those hoteliers to monitor the market performance in order to react prudently to more new supply.

“The Colombo skyline in particular continues to be busy with construction cranes. A lot of the new supply set to come online will be in in luxury and upper upscale segment, so we foresee interesting market dynamics ahead that will pressure occupancy and rate levels,” he cautioned.

STR’s hotel performance sample in Sri Lanka has grown to nearly 50 per cent of the 14,806 rooms in the country. Its census database shows 146 properties with another 26 across the under contract phases of the pipeline. STR’s March Pipeline Report showed 15 properties in construction comprising 3,450 rooms.

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