BNM: Hotel business to remain modest throughout 2021

KUALA LUMPUR: Market conditions for hotels are likely to remain modest throughout 2021 amid intense competition for a smaller pool of travellers, higher operational costs due to the imposition of standard operating procedures, and slow recovery in travel demand, said Bank Negara Malaysia (BNM).

It said the outlook for the hospitality industry remains highly dependent on the stringency and duration of interstate and international border restrictions.

"Restrictions on international travel could take some time to ease despite the roll-out of vaccination programmes globally," it said in the Financial Stability Review Second Half 2020 released today.

However, shopping malls had fared a little better, with some recovery in footfalls especially towards the end of 2020 but some of the shifts observed in consumer behaviour towards online purchases are likely to persist and will continue to partly weigh on demand for retail space amid pre-existing excess supply.

Similarly, some businesses have also begun downsizing office space and sub-leasing unused space as work from home arrangements remain largely in place.

BNM said vacancy rates and market rentals in these segments have deteriorated further, with some landlords already reducing their asking rents by up to 15 per cent.

Adjustments to incoming supply of office and retail space were also observed as some developers deferred the completion date of their projects.

It said so far, the deferred projects have had only a limited impact on overall supply of office and retail space as they account for a relatively small share (12.5 per cent and 9 per cent, respectively) of incoming supply.

"The planned incoming supply of office and retail space in the Klang Valley over at least the next three years remains large, equivalent to 23 per cent and 58 per cent of the existing stock.

"Amid the prevailing oversupply and challenging business conditions, rental and occupancy rates for office and retail space are expected to remain depressed in the period ahead.

"Taken together, risks of potential losses to financial institutions from prospects of weaker debt-servicing ability and valuations as a result of depressed conditions in the non-residential property market are judged to have increased from the impact of COVID-19," it said.

-- BERNAMA