With Indonesia’s hotel construction pipeline falling from 57,720 rooms in 1Q2020 to 33,804 in 1Q2023, a CAGR of -16.3% according to Lodging Econometrics, many hotel markets in the country are in synch when it comes to hotel room supply and demand growth.
This is likely to lead to a period of market equilibrium for many hotel markets.
The relationship between the 2012-2022 CAGR for room demand and room supply is set out below. About 78% of the growth in room supply can be attributed to a growth in room demand across all provinces.
The greatest imbalances between supply and demand growth are found in the provinces of Sumatera Barat, Sulawesi Barat, Kalimantan Selatan, and Kalimantan Tengah (demand growth greater than supply growth) and Gorontalo, Bali, Papua, and Sulawesi Utara (supply growth greater that demand growth). The more evenly balanced provinces include Sulawesi Selatan, Aceh, Riau, Kalimantan Timur, and Maluku.
When supply and demand are in equilibrium, hotels have the potential for ADR growth. As demand increases faster than supply, hotels can adjust rates upward. This growth in ADR can be beneficial for hotel profitability, investment returns, and overall hotel industry development in Indonesia.
Equilibrium also signals a healthy and attractive market for investors. When supply and demand are in balance, it demonstrates that the hotel industry has stability and growth potential. This is likely to encourage domestic and foreign investors to participate, leading to increased capital inflows, job creation, and overall economic development.
About Writer
Ross Woods is a seasoned hotel investment advisor with over 30 years of global experience in hotel asset management, portfolio management, and hotel advisory services. Known for his collaborative-based consulting style that integrates a high level of strategic and analytical expertise, his “smarts” are sought by clients to solve complex issues, make better decisions and realize the highest risk-adjusted investment returns. His clients include banks, private investors, REITs and hotel management companies in the United States, South East Asia, Australasia, Europe, and Dubai.
Contact
Comments