After a decade of solid growth in demand for Indonesia’s burgeoning star-rated hotel sector, 2019 witnessed a precipitous decline in room night demand across all star-rated categories, except for 1-star hotels. Led by 5 and 2-star hotels with declines of 32% respectively, 3 and 4-star hotels followed with declines of 27% and 21% respectively, leading to an overall decline of 25.2%, the largest annual decline since star-rated data was collected.

The precipitous declines in demand occurred mainly in Bali and Jakarta, the two largest markets for star-rated hotels. According to BPS, the number of domestic visitors to Bali fell to 6.2 million in 2019, down 36.5% on 2018. The price of airfares offered by the duopoly of Garuda and Lionair had a significant negative impact on the demand for hotel accommodation in 2019.

Indonesia’s star-rated hotels across the 34 provinces hosted 77.3 million room nights in 2019, down from 103.4 million in 2018. Over the past five years (2014-019) the demand for star-rated hotels (room nights occupied) has grown at a compound annual growth rate (CAGR) of 6%, compared to 13% over the ten years 2009-2019. Since 2012 the sector has enjoyed annual double-digit growth rates.

The demand for 2-star and 3-star hotels has led the way growing by a CAGR of 10% and 9% respectively over the past five years. This is followed by 4-star, 1-star, and 5-star growing at CAGRs of 6%, 0%, and -1% respectively.

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Distribution of Room Night Demand by Hotel Star-Rating in Indonesia, 2009, 2014 & 2019

Source: Hotel Investment Strategies, LLC based on BPS-Statistics Indonesia

As a result, the distribution of demand has shifted between the rating categories as illustrated in the graph above. In 2009, 5-star hotels captured 24.6% of demand compared to 13.5% in 2019. Today, 3-star hotels account for about 33% of demand compared to 27.1% in 2009.

The island of Bali accounted for more star-rated room demand compared to any other province in 2019. It captured 16% of all star-rated room demand in the country, narrowly eclipsing DKI Jakarta which captured 15.7%.

Ranking of Room Nights Demand by Province and Star Rating, 2019

Source: Hotel Investment Strategies, LLC based on BPS-Statistics Indonesia

While the demand for star-rated hotel accommodation across the country grew by 6% CAGR over the past five years, the growth in Jakarta and Bali, the two most popular destinations, grew less than the national average, at CAGR 2.3% and 0.5% respectively.

Growth in Star-Rated Hotel Room Demand by Province & Star Rating 2014-2019 (CAGR%)

Source: Hotel Investment Strategies, LLC based on BPS-Statistics Indonesia

With the onset of the COVID-19 pandemic and the closure of Indonesia’s borders to foreign tourists, we expect another precipitous decline in room demand for star-rated hotels in 2020. Our recent post “Forecasts of Visitor Arrivals from Singapore, China, Australia and India to Indonesia 2020-2025”, forecasts that foreign visitors will decline by about 50%, from 16.1 million in 2019 to 8.4 million in 2020.

There is a 60% probability that the number of international visitors will fall to between 6.8 million and 10 million in 2020. It will not be until 2024 that the record of 16.1 million international visitors achieved in 2019 will be surpassed.


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