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What’s next for Kuala Lumpur in five points:

Kuala Lumpur has reported hotel supply growth of 13.3% since 2014, moving the market’s total inventory to 178 hotels and close to 44,000 rooms. Demand, on the other hand, has lagged in comparison with average growth of 2.2% across the same period. 

Supply rose by 3.5% in 2018, while demand ended the year virtually flat (+0.2%) after two years of comeback growth. But where is Kuala Lumpur’s hotel industry heading next?

1. Kuala Lumpur may have experienced a strong start to 2018, which creates difficult to match comparisons year over year, but 2019 has seen absolute ADR levels landing 5 percentage points below the recent five-year average. Overall results for Q1 2019 will act as a strong indicator for whether an early-year performance slump will continue, as March is routinely a month with strong historic averages in both ADR and occupancy levels.

2. Performance during the Lunar New Year is another performance indicator for the market, as this period historically pads occupancy during extended holidays in Kuala Lumpur. Comparing the main dates of the holiday week showed a substantial drop (-20.7%) in occupancy in 2019, falling from 78.5% in 2018 to 66.9% this year. 

3. Ramadan continues to take place earlier in the year when compared to the Gregorian calendar; in 2018, it covered most of May. Historically not a strong month with a low baseline, limited overall impact is expected until Ramadan blends into April and eventually the peak month of March for the first time in 25 years. In 2018, when Ramadan took place during Kuala Lumpur’s other peak month of August, the market reported a significant drop in occupancy, while rates held up reasonably well.

A softer peak occupancy is expected during the two days of Hari Raya Puasa in 2019, the end of the fasting month, which set a strong benchmark of 71.6% in 2018.

4. The Malaysian capital’s current pipeline of 25 hotels and 6,900 rooms will put pressure on certain areas. High-end hotels in particular can expect additional pressure, as roughly half of all new hotels are in the upper-upscale and luxury hotel classes. 

In comparison to other Asian cities, Kuala Lumpur’s pipeline appears less urgent as only 20% of new rooms are due to open in 2019. For example, Bangkok will open 27% of its close to 12,000 new rooms in 2019. Tokyo is the most extreme example with 50% of the more than 17,000 new rooms set to open this year as the market prepares to host the Rugby World Cup and Summer Olympic Games. 

Close to 80% of the new room stock for Kuala Lumpur will be managed by the major global hotel chains, further expanding the brand presence in a previously more domestic and unbranded market.

5. A number of factors will determine Kuala Lumpur’s performance success in the short- to mid-term. Diversifying its arrivals and length of stay by increasing international arrivals—outside the high-volume and less-fluctuating traffic from neighbours Singapore, Thailand and Indonesia— is a challenge the market needs to address given the incoming additions to hotel inventory.

In addition, we have yet to see the complete effect from the aftermath of the 1MDB scandal along with the growing uncertainty around the heavily debated future of Malaysian Airlines.