Coronavirus and Philippine tourism
Through Colliers REview, we intend to discuss pressing issues that are likely to impact Philippine property. For my maiden column, I wanted to write about Colliers Philippines’ outlook for the property setor in the next 12 months.
But there’s a more interesting issue in the market—the coronavirus and its impact on Philippine property, especially leisure.
The Philippine government likely reached its target of 8.2 million tourists in 2019, which is aligned with Colliers Philippines’ forecast. Meeting the target in 2020 however will be a challenge due to the coronavirus threat.
The imposition of a travel ban to and from China is likely to adversely affect tourism. The numbers are clear: some 1.6 million Chinese visited the Philippines in the first 11 months of 2019, accounting for 22 percent of all arrivals last year. During the period, Chinese arrivals grew by 40 percent year-on-year—faster than the annual tourist arrival growth of 10 to 15 percent for the entire country. This indicates that the Chinese market has been providing a major lift to the Philippine tourism sector.
Data from the Department of Tourism (DOT) showed that the number of Chinese tourists surged from nearly 491,000 in 2015 to 1.26 million in 2018. Also notable is the average expenditure of a Chinese tourist in the Philippines: an estimated $1,130. These expenditures have significant multiplier effects to the economy—from hotel accommodation to shopping.
Originally, Colliers projected Metro Manila hotel occupancy to reach 70 percent in 2020, lower than the 72 percent posted in 2019 due to the delivery of more hotel rooms in Metro Manila. But the coronavirus scare has compelled us to adjust our hotel vacancy forecast. Assuming a sustained pace of arrivals from other major sources such as South Korea, Taiwan, and the United States, and factoring in a significant decline in Chinese arrivals, we see hotel occupancy in Metro Manila declining to about 63 to 65 percent.
Previously, we weren’t as dependent on Chinese tourists. Now, a lot is at stake.
The drop in our projection is no longer surprising as industry groups have announced hefty decline in occupancy and revenues. The Philippine Hotel Owners Association earlier said figures are down by “a general average of 25 to 30 percent.” The Tourism Congress of the Philippines estimates total losses to hit P20 billion if the coronavirus threat persists in the next three months.
There’s no question that the virus will have a negative impact on tourism. But what is at stake?
DOT data showed that travel and tourism accounted for 12.7 percent of the country’s economy in 2018, from 7.9 percent in 2012, while spending on leisure activities grew by an average of 8 percent from 2010 to 2018, faster than the annual GDP growth during the period. The segment also generated employment opportunities for passenger transport, accommodation and food and beverage, entertainment and cultural services, retail on tourism goods, and travel agents and operators.
But how did Philippine tourism perform during previous global health scares? During the Severe Acute Respiratory Syndrome (SARS) outbreak, the country attracted 1.907 million international visitors, lower than the 1.933 million recorded in 2002. Arrivals picked up immediately after a year, growing 20 percent to 2.291 million in 2004.
During the H1N1 or swine flu outbreak in 2009, arrivals dropped to 3.017 million then grew by 17 percent in 2010 to reach 3.52 million. During the period, the global financial crisis also affected global tourism.
The possibility of arrivals picking up a year after the situation stabilizes is high. Assuming this health issue normalizes in the second half and arrivals grow between 10 and 20 percent during the period, we project 2020 ending with an average hotel occupancy of 68 to 70 percent.
What should hotels, related businesses and government stakeholders do? Target other major sources of arrivals such as South Korea and the US and implement a more aggressive domestic travel campaign. Now is the perfect time for the DOT to prop up programs such as farm tourism and agro-ecotourism.
Hotel operators should also prepare for spillover demand from Tagaytay, a popular weekend destination. The recent eruption of the Taal Volcano has had an adverse impact on businesses in Tagaytay, including hotels and MICE facilities.
Colliers believes that demand for these establishments is likely to marginally shift to Metro Manila over the first half. Hence, we recommend hotel operators to prepare for the spillover impact from guests originally considering Tagaytay. This is one development that could contribute to higher hotel occupancy in Metro Manila and other destinations in northern and central Luzon.
We see travelers, businesses and other stakeholders taking a wait-and-see stance until this global health issue subsides.
It is difficult to fully assess the coronavirus’ impact on Philippine property at this point due to uncertainty about its severity. Even globally, the overall impact of the virus remains to be seen.
The author is a senior manager for research at Colliers International Philippines.
