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The current pandemic crisis, caused by COVID-19 is likely to have a lasting impact on Indonesia’s luxury and upscale hotel brands. The industry is likely to witness a consolidation of brands after the proliferation of brands in recent years. The smaller brands are likely to address redundancy in their operations and make permanent new staffing schedules brought on by furloughed employees.

The current crisis is likely to accelerate the process whereby hotel brands shed their real estate ownership and concentrate on an “asset-light” strategy. With little capital appreciation to-date, Indonesia’s hotel industry has relied on, and will continue to rely on, current cash returns, not appreciation returns as the major source of investment returns.

The current market performance of Indonesia’s mid-tier and top-tier luxury and upscale hotel brands is illustrated in the accompanying graphs. The mid-tier luxury and upscale brands are characterized by hotels which achieved ADR’s of between US$200 and US$300 and operated with average occupancies of 55% -75% in 2019. According to the Bali Hotel Association, Bali’s Upper Upscale hotels achieved an average occupancy of 71% and an ADR of US$187 in 2019.

The Market Position of Indonesia’s Mid-Tier Luxury & Upscale Hotel Brands 2019

Source: Hotel Investment Strategies, LLC
Note: The size of the bubble reflects the demand for the brand in Indonesia.

The top-tier luxury brands operated over a wide range of ADR’s from US$400 to US$1,000 and occupancies of 50% to 65% as illustrated below. According to the Bali Hotel Association, Bali’s Luxury hotels achieved an average occupancy of 67% and an ADR of US$454 in 2019.

The Market Position of Indonesia’s Top-Tier Luxury & Upscale Hotel Brands 2019

Source: Hotel Investment Strategies, LLC
Note: The size of the bubble reflects the demand for the brand in Indonesia.

Despite the current upheaval in Indonesia’s tourist industry, we expect the luxury sector to prosper for a variety of reasons, including the government’s initiative to promote “quality” tourism, i.e., high expenditure tourists, rather than “quantity” tourism, i.e., high volume – low expenditure tourists. Only time will tell if this redirection pays off for Indonesia’s burgeoning tourism industry, especially for the country’s luxury and upscale hotel brands.

Please feel free to call us if we can help you identify and negotiate with a hotel brand, franchise or operator that will maximize the performance of your hotel. Identifying the best-suited brand for an Indonesian asset requires a consultant with hands-on experience in the Indonesian marketplace. We are able to assist you!