A victim of its own unprecedented success, the island of Bali is now faced with an oversupply of hotel rooms with no sign of construction slowing down in 2014.
By Samantha Coomber
In 2010, Indonesian Ministerial officials urged the Balinese Government to temporarily halt new hotel development, arguing there were sufficient rooms based on projected arrival numbers for 2015 and further building would create unhealthy repercussions. Bali tourism stakeholders, including Bali Chapter, Association of Indonesian Tour and Travel Agents (ASITA) have repeatedly lobbied for a clamp-down on Bali’s uncontrolled hotel construction.
By 2012, Bali Tourism Office, Bisnis Bali and many others confirmed that Bali’s hotel supply was outstripping demands, now estimated at over 75,000 hotel rooms and by end 2014, 100,000. Bagus Sudibya, head of Association of Indonesian Tour and Travel Agencies (ASITA), was quoted in the media that an accommodation oversupply had become a critical problem facing Balinese tourism.
Worse, 90 per cent of hotel development is all bunched-up in southern Bali, in Badung (including Kuta-Legian-Seminyak, Bukit and Nusa Dua) and Gianyar regencies and Denpasar mayoralty – the island’s wealthiest regions where overdevelopment is most evident. Of projected accommodation developments up to 2016, 50 per cent are earmarked for the south’s Nusa Dua, Bukit, Tanjung Benoa, and Jimbaran. South Bali has long been Bali’s key tourist zone and continues, while other regions lack decent infrastructure. Despite this, investors keep building more hotels, and increasingly, internationally-branded properties and big projects, set to open within the coming years, including Rosewood, Jumeirah, Raffles, Shangri-La, Ritz Carlton, GHM, and Alila luxury groups.
Why the build-up?
Estimated foreign arrival figures for 2013 are at a record-breaking 3.2 million, with a projected 3.5 million for 2014. Indonesia’s domestic market continues to be the main force behind Bali’s tourism strength, with arrivals more than doubling in four years and a projected 6 million for 2015.
Tourism, including accommodation construction, contributes approximately 67 per cent of Bali’s buoyant GDP in 2013. Under the 2001 Regional Autonomy Law, Bali’s regional administrations exercise the right to manage their own tourism development, authorising new building permits without securing government approval. Tourist-related facility revenues are for most, their main (and lucrative) income source.
In 2011, the government issued a moratorium on hotel construction in southern Bali, designed to tackle overdevelopment and directing investment to less-developed regions. However, none of Bali’s regional administrations have implemented this and new building permits continue to be issued. Bali’s most overdeveloped regency, Badung, received harsh criticism, accused of “selling off its land to large-scale investors”. And investors’ confidence is fuelled by governmental commitment to infrastructure projects, besides the highly anticipated international events in 2013 – including APEC – and potentially lucrative off-shoots. Without any government-integrated tourism plan and conflicting provincial and regional interests, uncontrolled construction prevails.
Even with increasing visitor figures, it’s widely acknowledged by tourist organisations, including Indonesian Hotel and Restaurant Association (PHRI), that Bali’s excessive accommodation supply will outstrip demand in 2014 and 2015. These arrival figures are actually experiencing a slowing of growth, from double-digit rates to around five per cent, without allowing for stagnation or decline due to unforeseen factors.
Uncontrolled development has also led to alarming environmental impact, including worsening pollution, flooding problems, and social and cultural problems – most notably in the south.
One tourism official was quoted in the media saying the “government never thinks of how much water and electricity will be used for every new building permit issued”, which in turn, directly affect local communities facing shortages of these limited resources. With building codes invariably ignored, Balinese traditional aesthetics are declining. Infrastructure is deemed insufficient for current needs in southern Bali, let alone coping with more development. Improved infrastructure is required before development can kick-start in other regions.
“Bali’s development boom does have ramifications on supply-demand ratio as Bali‘s Airport, despite adding a new international terminal, doesn’t have the capacity to land enough flights to fill all of Bali’s existing hotels, let alone new ones,” states Roger Habermacher, general manager of AYANA Resort.
Despite increasing visitors, official statistics indicate hotel occupancies are now on the decline (even during festive peak season), averaging between 50 and 62 per cent in 2013 for star-rated hotels (70 per cent enables hotels to profit). Most agree the accommodation oversupply has contributed to this shift, exacerbated by unregulated budget non-starred hotels, non-registered villas and rental houses, driven by budget market demand.
With supply increase continuing over the coming years, budget and traditional-styled accommodation will struggle with occupancy rates and may be forced to close. They are overwhelmed by the flood of professionally-managed, international competitors, which generally maintain healthy occupancy rates.
As many accommodation providers have been forced to offer lower room rates to attract more guests, this has now led to a price war: slashed room rates and accommodation packages are good news for visitors, but not for operators or the island’s image. The Jakarta Post quoted chairman Ngurah Wijaya of Indonesian Tourism Business Association blaming price wars on hotel overbuilding facilitated by the regional administration’s lax control. Meanwhile, the government’s plans to impose hotel price standardisation still await approval.
“Excess supply has surpassed demand. We’ve no other solution than to stop building new accommodation facilities and intensify promotion until the situation improves,” Tjokorda Oka Artha Ardhana Sukawati, chairman of Bali Tourism Promotion Board (BPPD) was quoted. Like many tourism industry players, Mr Tjokorda expressed concern over the island’s post-major international events that saw a frenzy of accommodation and MICE facilities built in anticipation.
Generally speaking, upscale, well-established hotels seem to be faring better. Amid price competitions amongst hotels elsewhere, luxury accommodation in Nusa Dua Complex (BTDC) have managed to increase room rates and experience higher occupancy rates, compared to average figures for Bali’s star-rated hotels. BTDC data indicated that average occupancy rates, although fluctuating, hovered around 70 per cent in 2013.
Repeat guests, top-notch brand resorts with sound MICE facilities and major international events regularly hosted in secure, beachfront surrounds are contributing factors: Ida Bagus Purwa Sidemen, executive director, Bali Chapter of PHRI, was quoted in the media, “Major events in Bali helped boost occupancy levels, but mainly for Nusa Dua hotels around the event venues, not so much for other parts of Bali.”
Other upmarket hotels in tourism hotspots such as Seminyak, Bukit, and Jimbaran are also experiencing business as usual – or better.
“Despite an increase in room supply and meeting spaces, post-events like APEC and WTO, we’ve seen a consistent increase in demand and numbers at InterContinental Bali for 2014,” declares Dewi Karmawan, public relations. “We’ve seen substantial MICE growth and 100 per cent increase in international weddings in 2013.”
“Only the strong will survive in this heavily competitive environment,” AYANA’s Mr Habermacher says. “Experiencing high occupancy rates, we’re in a strong position to expand in the MICE market and accommodate large MICE groups, opening our on-site five-star RIMBA Jimbaran late 2013.” m