Sri Lanka seen facing hotel overcapacity

COLOMBO (EconomyNext) – Sri Lanka’s post-war hotel construction boom aimed at accommodating rapidly increasing numbers of tourists could result in overcapacity, a market research firm has warned.

Sri Lanka saw a stark drop in occupancy in the second half of 2012 and early 2013 but in the last two years occupancy levels have grown higher, said Jasmita Banga, business development manager of STR Global, a hotel industry market research company.

Sri Lanka’s average daily room rates have stayed more or less around the 120 US dollar mark over the years although occupancy fluctuates, ,” she told the two-day Hospitality Investment Conference Indian Ocean 2015 in Colombo.
 
In the Maldives average daily rates are above 650 US dollars. 

“Sri Lanka is far behind,” she said. “We would like to see rates being pushed up. The destination definitely deserves it and calls for it.”

But she noted that an oversupply of rooms could be on the horizon given the spurt in new hotel construction after the ethnic war ended in 2009.

Among the Indian Ocean countries, the growth on capacity in the Maldives has not been that much with Mauritius seeing the highest growth and Seychelles also having a huge supply coming.

“Sri Lanka is going to be the worst hit with a 50 percent increase in the next three years,” Banga told the forum organised by Sphere Conferences, the conference arm of Singapore Press Holdings Limited, covering the Maldives, Mauritius, the Seychelles and Sri Lanka.

“If all goes on time and the new hotels open on time, Sri Lanka  could be the worst hit.”

New minimum rate rules should keep “city hotels in check” and prevent a rate war that could depress rates further, Banga said.

But she noted that it was “not uncommon in new markets to see oversupply.”

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Banga added: “So it’s absolutely important for hotel developers to come in with a long term view.”

Sri Lanka reported getting over 1.5 million arrivals in 2014, up from a million in 2012.

The island aims to increase tourist arrivals to 2.5 million by 2016.
 

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