This is how badly hit Jakarta hotels were during the COVID-19 crisis
Occupancy rates and average daily rates hit historic lows of 15.8% and USD 45.50, respectively.
In terms of hotel supply, Colliers reveals that Recent conditions have halted construction projects for health and security reasons. This has somewhat changed our supply projections for projects which were previously scheduled for opening in 2020 and these will most likely be delayed.
In the meantime, due to the uncertainty, investors are opting to hold back their funds rather than invest and, as a result, several construction projects have been stopped. In early 2020 Jakarta was expected to see a total of 1,441 new rooms from six upcoming hotels. However in the first half of the year there has been no new room supply and it is unlikely that a new supply pipeline will materialise in the remainder of 2020.
Here’s more from Colliers:
When businesses restart, there is likely to be some adjustments in the operations of the hospitality industry, following heath protocols and guidelines set out by WHO. Social distancing and touch-less technology may transform the future of hotel design, which might involve extra investment in technology but may impact the quality of human capital in the hotel. In several new high-end hotels such things may well possibly be implemented.
Aside from the technology aspect, there might be a “new normal” in respect of hotel certification especially relating to hygiene, cleaning and security standardisation which will be needed to convince guests to stay.
By the end of April, the hotel occupancy rate hit the lowest point for the last few years to only 15.8%, obviously due to the pandemic. With the Jakarta hotel market mainly underpinned by business activities, which were already hit by sluggish interaction amongst people and also working from home policies which were adapted by many companies, the use of hotels either for staying or meetings dropped dramatically. However, the government did not entirely close all business sectors, and there are several lines of business that are allowed to run as normal under tight health protocols.
In April, the government temporarily ceased the operation of commercial flights which, obviously, impacted the hotel industry. Subsequently in May, the airport was re-opened but still with tight health protocols and this helped lift occupancy slightly to 23.1% in May. However, in May the ADR hit an historic low at only USD 45.50, much lower than the average rate in 2016 – 2019 which ranged between USD72.1 and 80.7. Currently, there are not many options for hoteliers to uplift or to maintain their occupancy performance apart from adjusting their room rates downwards.
The indicative room rates clearly indicate hotel conditions in Jakarta. The average rate of a 3-star hotel is below IDR400,000, for 4-star hotel below IDR750,000 and for 5-star hotel below IDR1,600,000. The data exclude promotions offered directly by hotels.
In June, several hotels which were previously closed started to operate with tight new protocols. Many hoteliers were expecting that business will improve in H2 2020, although there is no clear sign that this will happen in the near term.
During this low period, hoteliers offer more appealing packages and promotions such as “Buy now, pay later”. These promotions are for business and also staycation purposes, and for those living in Jakarta and surrounding cities. During the pandemic, some hotels are also offering creative packages by aiming to be a sanctuary for those seeking to self- isolate. The programme enables guests to self-quarantine for around 14 days and includes three meals per day.
The staycation and sanctuary packages may help offset the loss of hotel income from room revenues and F&B during the pandemic, especially as travelling is still restricted. The local DKI Jakarta government has issued a travel cross-border policy for people entering the city, meaning that those coming to Jakarta need to obtain a Jakarta Exit & Entry Permit letter (SIKM -Surat Ijin Keluar Masuk). The issuance of an SIKM is prioritised for workers with the exception of travel serving essential needs, in an effort to curb inter-regional transmission of the virus.
Another future, short-term challenge for hoteliers is how to activate facilities for MICE that can be used as other revenue sources for the hotel. Such facilities can be operated but may need to follow very strict rules and protocols. Social distancing may cut down capacity by up to 50% and this may possibly affect pricing. There will also be an impact on the operation of restaurants.
One of the most challenging issues in the hotel industry is related to the complexity of inter-regional travel protocols (both for business and tourism) and the quarantine processes which must be undertaken. It will certainly become a burden for business people and many are likely to shift their business activities to virtual business arrangements.