New supply of high-end hotels on the way for Sri Lanka's tourism sector

 

Further investment in accommodation will be necessary to ensure growing demand from both foreign arrivals and domestic travellers in Sri Lanka is met. In 2015 the country’s hotels saw a 12% year-on-year increase in foreign guest nights to 8.945m, while Sri Lankans spent 1.588m guest nights in tourist hotels.

The country also has a wide range of supplementary establishments, more informal accommodation that includes homestays, guesthouses and other rental properties. This segment saw significant growth in 2015, with a total of 4.349m foreign guest nights, up from 3.597m in 2014. Local guest nights in the informal segment rose from 512,017 to 636,644.

Capacity

Sri Lanka’s overall registered hotel room capacity was 19,376 in 2015, with 866 rooms added that year. Occupancy rates also saw a slight rise from 74.3% in 2014 to 74.5% in 2015. This does not vary widely around the country; capacity matches demand in major destinations like Colombo and in regions where tourism is still at an early stage of development. Demand, however, is expected to rise.

Average occupancy rates ranged from 72% in the northern region to 76.4% in Colombo in 2015. In most regions outside the capital occupancy has risen strongly over the past decade, notably along the east coast, where it was as low as 29.1% in 2005 and by 2016 had reached 74.1%. Outside Colombo visitor numbers have increased quicker than capacity, and excess capacity has started to be mopped up.

Grades

Occupancy rates vary little between hotel categories, suggesting that Sri Lanka has accurately balanced its supply of budget, mid-range and luxury accommodation. In 2015 occupancy rates ranged from 73.2% for one-star hotels to 75.1% for both four-star establishments and boutique hotels.

To help bring in foreign visitors, the Sri Lanka Tourism Development Authority hopes to attract more international hotel brands. Major brands increase the visibility of destinations, which can leverage hotel chains’ marketing power and pool of existing customers. In January 2017 Mövenpick Hotel Colombo became the first five-star hotel to open in the capital in 25 years. The centrally located hotel is owned by Softlogic, a Sri Lankan holding company, and managed by Swiss leisure group Mövenpick. It has 219 rooms, including 19 suites, as well as two banquet halls and one boardroom, making the property a player in the growing business market.

The Shangri-La Colombo is also due to open in 2017, offering 500 rooms and 4500 sq metres of function space in the city centre. The Hong Kongbased hotel group already opened a 300-room spa resort at Hambantota in the south of the island in July 2016, near a planned Chinese economic zone.

Both properties are expected to attract Chinese guests in particular, leveraging Shangri-La’s strong brand in the country, and the Colombo hotel will add to a growing stock of high-end accommodation.

The 397-room, $240m Grand Hyatt Colombo is also due to open in time for the 2017 winter season, offering a city centre location and 10 restaurants.

Investors Confident

The strong expansion of luxury capacity in 2017 has led to some concerns about oversupply. However, investors feel that the new hotels are diverse enough to find their own space on the market. More importantly, the outlook for visitor growth is strong enough to justify the outlay. “For a short period we may have lower occupancy, but there’s confidence that brands will pull in their customers. However, some older hotels that don’t upgrade will close,” Markus Marti, general manager of Mövenpick Hotel Colombo, told OBG.

Marti said that many of the country’s hoteliers have been encouraged by the fact that the government appears to have suspended plans to end minimum-pricing regulations in Colombo, regulation that could have led to declining standards and tougher competition at a time of increasing supply.

 

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Sri Lanka 2017

Tourism chapter from The Report: Sri Lanka 2017