Bangkok is the second most popular city in the world for overnight international visitors, according to the 2015 Global Destination Cities index compiled by MasterCard. Thailand’s capital trailed only London for the second year in a row, despite the unrest early last year, with visitor numbers up by 8% according to MasterCard.

Overall visitor numbers to Thailand have continued to increase with a 24% rise year-on-year to 7.9 million arrivals in the first quarter of 2015 and a 12% increase from 2013. Of the total arrivals, 26% are now from China, almost double the proportion seen in early 2014. First-quarter gross domestic product figures showed that service exports (tourism) were the only strong point for the Thai economy.

The increase in tourist arrivals meant that during the first quarter of 2015, Bangkok hotel occupancy rates bounced back to more than 80% according to the hotel research company STR. Average daily room rates in the first quarter also rose by 5.5% in baht terms from the same period a year earlier.

Bangkok has, historically, some of the lowest hotel rates in Asia and in some cases there has been very little real rate growth in 20 years because of the large amount of new hotels that have been built.

Currently, according to CBRE’s research, the Bangkok downtown hotel supply totals about 40,000 rooms with rates of more than 1,000 baht per night. The supply will continue to grow with another 5,500 rooms planned or under construction that could be completed within the next three years.

For the first time in many years CBRE has seen a drop in the amount of new downtown hotel construction starts. We believe this is partly due to better knowledge by potential investors about the challenges of running a hotel, especially in a city that has had events that have hit tourist arrivals almost every two years since 2006.

The rapid increase in land prices in downtown Bangkok, coupled with low room rates, means that hotels are not the highest and best use of prime freehold land in Bangkok; residential condominiums for sale hold that position.

Slim profit margins mean that hotel developers now face challenges when finding financing. Banks have also become more cautious in their lending policies, even to the hospitality sector, given the overall sluggishness of the Thai economy.

If visitor numbers continue to rise with Bangkok remaining one of the most popular cities to visit in the world, then finally hotel owners could start to see room rates increase. The increase in daily rates is expected to happen across the board from economy to luxury hotels, but there are still risks.

In the past Thailand has enjoyed a wide range of feeder markets with a very high percentage of repeat visitors. Thailand and Bangkok are now increasingly dependent on one feeder market which is China.

The Chinese feeder market is expected to grow. Last year, there were over 100 million outbound Chinese tourists, with more than 80% going to Asian destinations. Thailand was one of the top five global destinations for Chinese tourists, taking in more than 4.6 million Chinese visitors last year.

The risk is that any downturn in the Chinese economy, which affects outbound tourism, will have a noticeable impact on countries dependent on those arrivals. Thailand no longer has the luxury of a balanced mixture of feeder markets able to withstand a downturn in one market. This is also true for other countries in Asia, including Singapore, South Korea and Japan.

One of the often overlooked benefits from the growth of Chinese feeder market is that arrivals to Bangkok and Thailand are not as seasonal. The hotel high season traditionally is the end of the fourth quarter and the New Year period. Prior to the Chinese influx, hotels in Thailand faced poor occupancy and room rates during the middle of the year. Currently, the high season for hotels is still during the year-end; however, rates and occupancy have smoothed out somewhat, with two big Chinese holidays — Chinese New Year in January or February, and the National Holiday during October.

There have been some misconceptions that Chinese tourists are low-end visitors on “zero dollar” tours, on which operators recoup their costs by taking their customers to selected destinations in return for commissions. Historically there have been problems with such low-end tours, but the Chinese market today is highly segmented. A millionaire from Shanghai does not want to be in the same hotel as a bus driver from Chengdu. The growth trend in Chinese arrivals will likely benefit all grades of hotels.

Overall, the future for the Bangkok hotel market is looking more positive, with rising demand and a fall in the rate of new supply. This could result in rising room rates. Chinese arrivals will continue to be a critical factor for Thailand’s tourism growth. Chinese arrivals in the first quarter of 2015 were slightly higher than two million; this is close to half of the total for all of 2014. If the growth trend continues to be as strong for the whole of 2015, this could be a good year for tourism. n

James Pitchon is the executive director of CBRE Thailand. He can be reached at bangkok@cbre.co.th; Twitter: @CBREThailand; Facebook: www.facebook.com/CBRE.Thailand; website: www.cbre.co.th.