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An Expert View of Bali's Villa Hotel Market

Can Bali and its Luxury Villa Hotel Market Maintain Growth?

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The following article originally appeared in the Friday, November 7, 2008 edition of "The Jakarta Post" and was written by Djody Trisusanto, the head of Jones Lang LaSalle Hotels' Division.

Can Bali and its Luxury Villa Hotel Market Maintain Growth?

Bali will achieve a second consecutive record in international tourist arrivals this year, with January to September 2008 arrivals already at 1.5 million, a near 20 percent growth year-on-year.

This has been fueled by increased arrivals from Bali's traditional source markets, including Australia, the United States, France and the U.K. as well as solid growth in relatively new markets, including Russia, China and India. Despite being a slow-growing target source, Japan still represents the biggest market for Bali with about 20 percent of the total share.

The growth so far in 2008 has been partly due to an increase in the number of carriers authorized to land in Bali, and increased flight frequency. The lifting of the recent U.S. travel warning on Indonesia has also raised travel confidence and increased visitor growth from international markets.

Future growth is made possible with the potential resumption of Garuda services to Europe, the proposed expansion of Ngurah Rai Airport and the scheduled opening of a new international airport in Lombok in 2010.

Since 1998, Bali has managed to enjoy a positive compounded annual average growth of about 6 percent, weathering setbacks from the Asian financial crisis in 1998, terrorist attacks in 2002 and 2005 and the SARS epidemic in 2003.

The key to Bali's market resiliency is its uniqueness. It offers the beauty and harmony of endless cultural attractions, beaches and mountain resorts, culinary experiences, shopping and a wide choice of hospitality services, including luxury villa hotels.

The latter concept, which was pioneered by the Oberoi, Amanresorts and the Four Seasons in the early 1990s, has expanded significantly.

Bali has since become internationally recognized as the launching pad in Asia for many international luxury brands that include the Ritz Carlton, Bvlgari, Oriental Express, Como Shambhala and more recently the St. Regis.

The list grows longer with more luxury brands, such as W Retreat and Spa, Raffles, Banyan Tree and Alila set to open in the near future.

These luxury villa hotels offer privacy, luxury, views and personal services featuring detached villas with detailed architectural design, private pools, spacious indoor and outdoor living areas and lavish bathroom facilities.

With their superior attributes, luxury villa hotels are able to command significant rates, with an average daily rate (ADR) in the first six months of 2008 of about US$602, up by 20 percent from a year ago.

Occupancy, however, has grown at a more moderate pace -- about 56.7 percent during the same review period against 53.2 percent in 2007. This is attributable to the proliferation of private and independent villa developments in Bali over the last two years, which have shared demand segments with luxury villas.

Overall, the growth of both ADR and occupancy has lifted the revenue per available room (RevPAR) of the luxury villa hotel market by more than 28 percent on year to $341 in the January to June 2008 period. Despite declines in RevPAR in 2002, 2004 and 2006, over the past ten years, RevPAR has grown positively at more than 7 percent, showing the resilience of this market.

The rising number of private and independent villas is not seen as a serious threat to the luxury villa hotel market. Most of these establishments appeal to different market segments, with most looking for a bargain as most branded luxury villa hotels in Bali have continued to increase their rates over the last few years.

Adding to this is the intention of the Bali provincial government to increase control over the developments of these private villas.

Evidence of improved compliance between the state and developers has come in the force of the new governor's decision to enforce regulations, particularly those affecting Bali's aesthetics and environment.

Performance in the remainder of 2008 is likely to remain strong in view of normal cancellation levels and anticipated demand growth during the seasonal year-end holidays. We expect luxury villa hotels to see a record performance in 2008.

However, performance in early 2009 may curb as global economies slow and currencies of countries that are traditionally feeders for Bali weaken against the U.S. dollar.

The Bali tourism industry has experienced ups and downs and the luxury villa hotel market, similar to property markets, is cyclical.

In light of the tighter liquidity and competitive market environment, supply growth over the next few years will likely slow as developers and financiers review the size of their proposed projects, the target markets and the timing/staging of their developments.

Estimates of demand for luxury villa hotels will change with new demographics and segments.

The cycle will continue, and over the years with improved development regulations, security and infrastructure, we believe this luxury villa market will enjoy long term growth and continue to be resilient.

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