Phuket, Thailand, May 3, 2022 / TRAVELINDEX / The island's transaction market is picking up as owners grapple with liquidity issues amid a general decline in tourism sentiment. Thailand's battered hotel sector is showing increasing signs of fatigue as the global pandemic enters its third year. Nowhere is this more evident than on the resort island of Phuket, where over 73% of new hotel projects are either on hold or have been put on hold.

According to data from the recently published Phuket Hotel Market Update 2022 by consulting firm C9 Hotelworks, the island's once-thriving hotel pipeline is now suffering from the anxieties of hotel owners. They are feeling the effects of the volatile market and uncertain future prospects. Negative sentiment and tight liquidity have hampered development. Currently, 33 hotels with 8,616 rooms are under construction, their future uncertain.

A detailed analysis of the project pipeline data shows that 55% of hotel projects are mixed-use developments or hotel apartments with rental-based investment models for private investors. Given the current economic climate, the C9 study suggests that some of these real estate-focused hotel projects are unlikely to be reintroduced into the pipeline.

While glossy tourism campaigns emphasizing quality over quantity have become the new mantra nationwide, the reality on an island that saw passenger arrivals at Phuket International Airport plummet from over 9 million in 2019 to just over 900,000 in 2021 is markedly different. This substantial 90% decline, coupled with the fact that there are already 1,786 registered tourism establishments and currently 92,604 hotel rooms, means empty beds desperately needed by tourists.

Bill Barnett, CEO of C9 Hotelworks, commented on the situation as follows: “Two years ago, over 40% of the island’s international visitors came from either China or Eastern Europe, including Russia. Although I am asked daily when Phuket will recover, we are postponing our forecasts for a cyclical return until 2025.”

"The biggest problem at the moment is China. The dilemma is that while I fully expect visitor numbers in Phuket to stabilize again due to the favorable geographical location, the tourist-oriented infrastructure and the proven air transport capacity, macroeconomic and political problems are clouding the short-term horizon."

Phuket was a leader in Southeast Asia with its remarkable efforts at widespread vaccination and the pioneering "Sandbox" re-entry program. But with seasonal trade picking up and winter tourists slowing down, the island is now looking for alternative markets. While other neighboring countries like Vietnam, Indonesia, and the Philippines allow quarantine-free travel, Thailand remains competitive thanks to its controversial "Test & Go" system.

Hoteliers in Phuket reacted quickly to the consequences of the Ukraine-Russia crisis, but experience shows that the majority of the Russian market collapses in March. Australia, India, and the Middle East are three important source markets that are expanding their flight connections to Phuket and continue to show positive developments, even if none of them reach the passenger volume of the Chinese mass market.

While Phuket's tourism-dependent economy largely weathered the first two years of the pandemic unscathed, Bill Barnett of C9 says: "For the remainder of 2022 and beyond, a rapid increase in the number of hotels for sale is already expected. While most of these hotels are not in dire straits, it indicates a fundamental shift in investment sentiment within the hotel industry."

"The number of Thai hotel owners and foreign investors withdrawing from the sector is expected to increase. C9 believes that the slowdown in the project pipeline and the high activity in the transaction market are not entirely negative and will likely lead to a realignment of supply and demand in the medium term, resulting in a return to a more solid, rational, and less speculative market."

Another shift in attitudes among hotel owners on the islands was the wave of conversions from independent hotels to branded hotels. Many of the most successful hotels during the reopening of the Phuket Sandbox program and the growth in domestic travel were branded hotels. At the same time, some internationally managed hotels transitioned from management to franchise operations. This trend of hotel owners operating under global brands and white-label management solutions becoming increasingly popular was already anticipated and was merely accelerated by the pandemic.

Despite the visible reality of Phuket's tourism boom, this has a long history marked by a massive exodus of workers from the hospitality and service sectors. Given the many interruptions and reopenings, as well as the numerous hotel and business closures, the luster of the "Amazing Thailand" tourism promise has faded for an entire generation of workers.

While business volume continues to grow moderately, the industry continues to suffer from staff shortages. Perhaps the biggest challenge for hotels in Phuket is winning back their most valuable asset – hotel staff – to serve tourists upon their return. However, this trend is currently affecting all of Southeast Asia and the world. Doing more with fewer staff will therefore become the new norm in tourism.