People thinking of investing in tourist accommodation should "think twice" before doing so as the sector is approaching overcapacity, the hotel lobby has warned.
“Overcapacity will result in rate wars where there will only be losers. Only the strongest will survive the rate wars,” Malta Hotels and Restaurants Association chief Tony Zahra said.
Mr Zahra said Malta’s tourist accommodation market was nearing saturation point and that the the months between April and June further confirmed this.
“We have seen in Quarter 2 that once occupancy levels start dropping so does the room rate, and the lower the occupancy the bigger the room rate drop. For those that are still in time to rethink their investment in tourist accommodation, my advice is to think carefully before you commit your investments,” he said.
What did the survey find?
The MHRA chief was reflecting on a survey the lobby group commissioned which suggests hotels are struggling to keep up with the rise of private tourist accommodation offered through platforms like Airbnb.
The survey, which was carried out by Deloitte, revealed that while tourist arrivals and bed nights were up overall, private accommodation was soaking up much of that growth, with hotels struggling to keep up.
While private accommodation registered a 13 per cent increase in bed nights, business in hotels and guesthouses went the opposite way, registering a 2 per cent drop.
During the first six months of 2019, more than four out of every 10 tourists who visited Malta (44 per cent) stayed in private accommodation. Guests who opted for private accommodation also tended to spend a longer period there – an average of 8.4 days, compared to the 5.5 day average hotels managed.
Which hotels suffered the most?
Five-star hotels endured an especially difficult three months, with hotel occupancy down 2.6 percentage points to 79.2 per cent and their bottom line suffering, with gross operating profit down to €7,381 when compared to the €8,807 registered 12 months prior.
During those three months, the average five-star hotel room cost €176.9 per night – more than €5 a night cheaper than rates during the same period in 2018.
Four-star hotels also saw room rates decline marginally, though occupancy was steady and their income was buoyed by profit from non-accommodation activities. Three-star hotel owners, on the other hand, had something to smile about, with room rates, occupancy and profits all up.
Why are hotel owners unhappy?
Although roughly 18,000 properties offering private rented accommodation are registered with authorities and are subject to paying tax and eco contributions, the MHRA believes many thousands more continue to operate outside of the law.
Malta’s tourism sector risked becoming a victim of its own success, MHRA chief Mr Zahra warned.
“We are now in the situation where we need to manage our success to ensure that we have a sustainable industry,” he said. “There is no such thing as a guaranteed future”.
Thirty years have passed since a landmark document for Malta’s tourism sector was published – 1989’s Master Plan for Tourism, better known as the Horwarth & Horwarth report.
That report had, among other things, set out visions for master plans for key tourist areas such as Buġibba and Paceville. Those plans never came to fruition, with Mr Zahra on Friday expressing dismay at the “total disregard to master planning” that has led to what he described as a “mishmash”.
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