Attrition to hit Indonesia’s budget hotel sector

INDONESIA’S hospitality sector will see a streamlining in the number of hotel brands, especially in the budget segment, as land and construction prices increase in the next decade.Logo_TTG_Asia

While Indonesia is experiencing a middle class boom and the number of domestic travel reached 245 million trips last year, hotel room supply has outstripped traveller numbers in pace of growth and travellers are also now more cost-conscious, putting downward pressure on rate growth.

Speaking during Hospitality Investment World Indonesia in Jakarta yesterday, Yanti Sukamdani, chairman of Indonesia Hotel and Restaurant Association, said: “There has been massive hotel development in the country in the last few years, especially in the economy and midscale categories, and of late, the upscale and luxury segments in major destinations as demand is there.

“However, hotel rates are considerably low compared to the neighbouring countries, even Vietnam.”

Marc Steinmeyer, president director, Tauzia Hotel Management, said: “With such a huge population there is actually room for every tier of hotel in Indonesia, but they cannot be all (concentrated) in one place.

“The key is to have the right allocation of budget, economy, midscale and upscale in different locations…In the last three years there has been a trend that everyone wants to build budget properties and everybody wants to build at the same place. “

Presently many new operators are coming onto the market and there are about 60 brands in Indonesia. Steinmeyer predicted that there would be “a natural cleaning up” in the market and only about 10 brands left represented within a decade or so.

He said the challenge for budget hotels is the increasing land cost especially in major cities like Jakarta and Surabaya. “Cost of construction is increasing more and more, and on the other hand, room rates are not increasing. Honestly, Indonesia has the best quality of hotel for the cheapest in Asia.

Norbert Vas, vice president sales & marketing, Archipelago International Indonesia, pointed out that investors build budget properties on lands they have had for many years that are too small for bigger hotels or apartments.