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The historical growth rates in the supply of and demand for star-rated hotels in an Indonesian city or province provides an important baseline for projecting their future growth rates, essential factors in any feasibility study for a proposed or existing hotel.  Future hotel demand will either increase, decrease, or remain level.  The direction and rate of change is normally estimated through an econometric analysis of various economic and demographic indicators known to impact both supply and demand, as well as an examination of historic supply and demand changes.

In the post that follows we briefly examine the historical growth in the supply of and demand for star-rated hotels over the past five years, 2014 – 2019, for Indonesia’s 34 provinces. Our econometrically derived five-year forecasts for supply and demand, incorporate historical data as far back in history as the data allows.

Indonesia’s star-rated hotels experienced a 5.6 percentage point drop in occupancy during 2019, the biggest percent point drop since 2004. This was due to the significant imbalance between the growth in room demand and room supply.

For the first time since 2004, the growth in the supply of rooms grew faster than the growth in room demand. The supply of star-rated rooms grew from about 314,000 in 2018 to just over 364,000 in 2019, a growth rate of 15.8%. At the same time the demand for hotel rooms grew by only 4.7%, resulting in average occupancies falling to 53.1%, down from 58.7% in 2018.

The annual growth rates for 2019 can be compared to the five year CAGRs of 10.9% for supply growth and 13% for demand growth.

Growth in Annual Room Supply, Room Demand & Occupancy for Indonesia’s Star Rated Hotels 2014 – 2019

Source: BPS – Statistics Indonesia

For the longest period, 2005 – 2018, supply and demand growth was highly correlated with demand growth outstripping supply growth resulting in growing occupancies. It appears the adage, “build it and they will come” has proved correct for the period 2005 through 2018 with growth in supply and demand more-or-less in equilibrium.

The 2019 supply/demand imbalance was exacerbated by the differential growth rates in Bali and Jakarta, the two largest markets in the county. Supply grew by 32.5% and 19% for Bali and Jakarta respectively, while demand grew less strongly for Bali and Jakarta at 22% and 4.6% respectively.

Annual Supply & Demand Growth for Indonesia’s Star Rated Hotels 2005 – 2019

Source: BPS – Statistics Indonesia and Hotel Investment Strategies, LLC

While the demand for star-rated hotel accommodation across the country grew by a CAGR of 13% over the past five years, growth rates varied widely between the provinces as illustrated in the graph below.

The fastest growing provinces for growth in room-nights sold for the past five years (CAGR % 2004 – 2019) were:

  • # 1 Nusa Tenggara Timur – 21.1%
  • # 2 Banten – 20.4%
  • # 3 Lampung – 20%
  • # 4 Bali – 19.4% and
  • # 5 Jawa Barat – 18.2%

The slowest growing provinces for growth in room-nights sold for the past five years (CAGR % 2004 – 2019) were:

  • # 1 Kalimantan Utara – -7.6%
  • # 2 Maluku – -0.1%
  • # 3 Sumatera Utara – 2.6%
  • # 4 Sulawesi Tengah – 5.7% and
  • # 5 Kalimantan Timur – 5.9%

The five year CAGRs for supply and demand growth are highly correlated as illustrated in the graph below with a correlation of 0.88. The fastest growing provinces for growth in room supply for the past five years (CAGR % 2004 – 2019) were:

  • # 1 Banten – 20.5%
  • # 2 Bali – 19.5%
  • # 3 Lampung – 19.2%
  • # 4 Kalimantan Tengah – 18.2% and
  • # 5 Di Yogyakarta – 18%

The slowest growing provinces for growth in room supply for the past five years (CAGR % 2004 – 2019) were:

  • # 1 Maluku – 0.5%
  • # 2 Sulawesi Barat – 2.1%
  • # 3 Sumatera Utara – 3.9%
  • # 4 Maluku Utara – 4.1% and
  • # 5 Sumatera Barat – 5.9%

Scatterplot of 2014-2019 Room Demand & Room Supply Compound Annual Growth Rate (CAGR %) for Star Rated Hotels by Indonesian Province

Source: Hotel Investment Strategies, LLC based on BPS – Statistics Indonesia data.

The historical growth rates in supply and demand at the province level provide useful baseline data for forecasting future growth rates, critical factors in determining future profitability and investment returns. Future hotel demand will either increase, decrease, or remain level. The direction and rate of change is estimated through an analysis of various economic and demographic indicators, as well as an examination of historic supply and demand changes. The estimated change in hotel demand is generally projected by market segment for periods ranging from three to five years.

The availability of timely market intelligence on Indonesia’s hotel sector, and the seemingly predictable nature of hotel real estate markets, also give investors more confidence to target markets in Indonesia. Over the past ten years, good statistics on markets have become available, giving investors ammunition for market forecasting, and identifying target markets from the hotel investable universe.

Check out our previous posts on the growth in Indonesia’s star -rated hotels.