The Impact of Tourism Arrivals on the Hotel Market in Phnom Penh

• 26 September 2017
• Local News
• 7620 Views

Phnom Penh is one of the preferred places to stay for overnight international visitors, with visitor numbers growing every year.

Cambodia’s tourist arrivals increased by 5 percent year-on-year in 2016 compared to 2015, according to the Statistics and Tourist Information Department of the Ministry of Tourism. The stats show that Cambodia welcomed 5,011,712 international travellers compared to 4,775,231 visits in 2015. Vietnam led the supply market with 959,663 visits in 2016 as compared to 987,792 visits in 2015. Other markets in the top five were: China (with 830,003 visits and an increase of 19.5 percent), Thailand (with 398,081 visits and an increase of 13.8 percent), Laos (with 369,335 visits and a decrease of 8.9 percent) and South Korea (with 357,194 visits and a decrease of 9.6 percent).

Of all international visitors arriving by air, Phnom Penh Airport secured 1,164,240 arrivals. The increase in tourist arrivals meant that during 2016, Phnom Penh hotel occupancy rates bounced back to over 70 percent. Average daily room rates in 2016 grew steadily from the same period a year earlier.

Traditionally, the hotel high season is at the end of the fourth quarter and the New Year period. In the past, hotels in Phnom Penh faced poor occupancy and room rates during the middle of the year. Currently, the high season for hotels is still during the year-end; however, rates and occupancy have smoothed out somewhat with the increase of visitors from neighbouring countries such as Thailand and Vietnam.

Historically, Phnom Penh has had some of the lowest hotel rates in Asia. For some hotel categories, there has been very little real rate growth and this is expected to happen across the sector from backpacker hostels, to economy and luxury hotels. This is because of the large amount of new boutique hotels that have been built over the city. On the other hand, we have seen a rise in the amount of new hotel construction starts, particularly in the prime areas of Phnom Penh.

Perhaps this is partly due to the superior knowledge by potential investors about future prospects, especially in a city with so many events and a record breaking number of visitors coming to the capital each year. If visitor numbers continue to rise, then hotel owners would start to see room rates increase.

“There are too many hotel rooms in Phnom Penh. In this age of competition, quality is a buzzword for the hotel industry. We will continue to see some more nice hotels having a presence in the market such as the Hyatt and Marriott brands,” explained Chhayleang Ngoun from Ratanaka Realty. For hotel developers, the rapid increase in land prices in the prime areas of Phnom Penh, coupled with low room rates, means that some hotels are not the highest and or represent the best use of prime freehold land in Phnom Penh. As a result, Phnom Penh downtown hotel supply will continue to grow with more four or five star hotels planned or under construction that could be completed within next three years. “There are not enough hotel rooms to supply the market,” countered Chan Mlop Sokha from Sokha Law Firm. However, profit margins for hotel developers / operators are slim, and some hotels face challenges when seeking financing.

Compared to Bangkok and Ho Chi Minh City, it is true that Phnom Penh does not enjoy as many repeat visitors – both Thailand and Vietnam have a wide range of feeder markets with a very high percentage of repeat visitors. However, Cambodia and Phnom Penh are now increasingly dependent on visitors from Southeast Asia and mainland China. In the coming years, the Chinese visitor market is expected to grow. Last year, there were close to 1 million Chinese visiting Cambodia. However, the risk of any downturn in the Chinese economy can affect outbound tourism. This will have a noticeable impact on countries dependent on those arrivals and Cambodia is one of the countries heavily dependent on Chinese visitors. One of the often overlooked benefits of the growth in visitors from Southeast Asia, is that arrivals to Phnom Penh are not as seasonal.

Overall, the future for the Phnom Penh hotel market is looking more positive, with rising demand but also a rise in the rate of new supply. This could result in a decrease in room rates. Southeast Asian and Chinese arrivals will continue to be the main source of Cambodia\\\\’s tourism growth. If the growth trend for 2017 continues to be as strong as for the whole of 2016, this could be a good year for tourism.