Sri Lanka’s lucrative tourism industry would require an addition of 22,500 rooms during the next five years to achieve the government’s target of attracting 2.5 million tourists by the year 2016; a recent research report has projected. This report published by IIFL Institutional Equities states that therefore the future growth in tourism will hinge on development of infrastructure and accommodation capacity.
“In 2011, the country had around 14,653 graded rooms (total current capacity is around 21,000), of which Colombo accounted for 5,659 rooms. Hence, incumbent hoteliers would benefit from a spike in tourist arrivals in the short to medium term; these hoteliers should see strong margin expansion,” the report noted.
It pointed out that against this backdrop, a number of foreign hotel chains, existing hoteliers and companies have aggressively started to look for new hotel ventures but that new capacity would take at least 24-36 months to come on stream.
Stating that opportunities in the sector outweigh the challenges, IIFL’s country update on Sri Lanka tourism said the domestic hotels and tourism industry are set for buoyant growth.
The government expects nearly one million visitors in 2012. The sharp growth in tourist arrivals in Cambodia and Vietnam after the end of the conflict is an indicator to the potential for post-war Sri Lanka.
“Given the growing interest in the hotel industry, we believe the sector is set for buoyant growth underpinned by increased tourist influx and capacity expansion. Until winter 2009, hotel occupancy levels were low; occupancy rates in city hotels averaged around 50% compared with 40% in resorts. A room in a 5-star hotel was typically available for US$60 per night as against US$35 per night for a resort room. Currently, occupancy levels in city hotels have increased to an average 70% and occupancy levels in resorts have also increased to 65%. Average room rates (ARR) have doubled since 2009; a room in a 5-star hotel in Colombo city is currently at US$130 per night (minimum rate of US$120) and that in a 4-star hotel is at US$90 per night,” the report stated.
Sri Lanka’s tourist arrivals in June were at 65,245 (up 21.6% YoY). As of YTD June, tourist arrivals have increased 18.7% to 452,867.