Updated: Feb 16
ID HOTELIER - The downsizing of Jakarta’s star-rated hotels and the impact of the pandemic is likely to have a lasting impact on the profitability of the city’s hotels. With increased attention given to the level of fixed expenses required to operate hotels, hotel investors are likely to see a reduction in these costs compared to previous years. Reduced fixed costs mean hotel investments may be less risky than previously thought, leading to lower capitalization rates, equity yields, and interest rates.
The average size of a 5-star hotel in Jakarta has fallen by 170, from 497 rooms in 2000 to 327 in 2021. Over the same period, the average size of 4-star hotels declined by 111 rooms, from 313 rooms in 2000 to 202 rooms in 2021. Over the period hotel operators have become more adept at controlling expenses with the ebb and flow of seasonality and hotel cycles – particularly during economic downcycles.
While larger hotels generally delivered higher profit margins, focusing on new business models has resulted in increased profitability margins for smaller properties. Many hotel operating costs that have traditionally been viewed as fixed are actually variable and influenced by occupancy.
The reasons why the average number of rooms in 3, 4, and 5-star hotels in Jakarta has declined over the years may include competition between brands, limitations on the amount of land available, zoning limits, availability of internal and external capital, and architectural design.
Ross Woods is a seasoned hotel investment advisor with over 30 years of global experience in hotel asset management, portfolio management, and hotel advisory services. Known for his collaborative-based consulting style that integrates a high level of strategic and analytical expertise, his “smarts” are sought by clients to solve complex issues, make better decisions and realize the highest risk-adjusted investment returns. His clients include banks, private investors, REITs and hotel management companies in the United States, South East Asia, Australasia, Europe, and Dubai.