Glut in apartments to cost formal hotel sector dearly

• Formal hotel sector set to lose US $ 480mn by 2018
• Star-graded city hotels charge 15% higher than regional peers
• CAL expects 3, 000 new luxury units in Colombo by 2018

The glut in luxury apartments and the unregulated hospitality sector could cost the regulated hotels by as much as US $ 480 million by 2018, as the apartment units could be rented out at a fraction of the cost charged by the graded hotels, an independent research house projected.

Further, the research arm of Capital Alliance Partners Limited (CAL Partners) observes Sri Lanka’s star -graded city hotels fetch rates 15 percent higher than the regional peers which have caused a shift towards unregulated segments. 

Sri Lankan resorts sector witnessed an increase in average room rates further in 2015. 

“Sri Lanka still trails behind the region with respect to value-service offering. This discrepancy may cost the regulated hotel market US $ 480 million (Rs.70 billion) by 2018 as a glut of apartments cater to tourists,” said the author of the research report and the Chief Strategist at CAL Partners, Purasisi Jinadasa. 

According to the data, in 2014 the unregulated market has accounted for 36 percent of room nights which has cost the regulated sector by as much as US $ 97 million. 

CAL Research expects 3,000 new luxury units to hit the Colombo city market by 2018. “The majority of new units will be bought for investment purposes as the average unit price of US $ 850,000 (Rs. 125 million) is beyond the means of an average household to bear. As a result, a majority of the new units are likely to be rented out,” the research report added. 

A family of four could save on average US $ 311 a night by staying at a luxury apartment in Colombo, CAL Research measures.   

“A stay at a three bedroom apartment is US $ 180 and food and beverage costs can be reduced to US $ 35/day if regular delivery services or non-hotel restaurants are frequented. Further, the grocery bill may amount to US $ 70/week,” the report added. 

This is much lower than the US $ 422 average rate per night for two standard rooms in a graded hotel an additional US $ 90 a day for meals alone. 

It was only last week the John Keells Holdings PLC Chairman, Susantha Ratnayake said the group’s leisure sector profit fell due to decreased occupancies despite the record number of tourist arrivals which topped 1.8 million in 2015.  

John Keells Hotels PLC has the largest stock of hotel rooms in Sri Lanka. This is besides the leakage factor of tourist to the ‘informal sector’ consisting of smaller guest houses and home stay units stays.  

Nevertheless it is extremely difficult to track the informal sector data but if this leakage factor in to the informal sector stays too is taken in to consideration, Jinadasa said the loss on the regulated hotel sector could be, “much larger”.