New era visitors

José I. Duarte
Economist
The Construction and Public Works department has just published data concerning the construction of new hotel facilities in town. We are told that no less than 43 investment projects are under construction or being assessed by the authorities. If all projects are implemented, the additional supply of hotel rooms in Macau will exceed the figure of 25,000 rooms, in rough numbers. By the end of the first quarter of this year 18 projects were already under way, representing a total construction of close to 10,000 new rooms.
Knowing that Macau has currently just below 28,000 rooms in all categories of hotels, what we are observing here are plans for the almost doubling of capacity. Surely, these projects are very much the outcome of the previous market mood, when there seemed to be no limits to growth. The changes that occurred meanwhile will certainly put some of these projects on hold, at least until the waters clear a bit. But the conclusion of just those already under construction will represent an increase of one-third of the room supply in the short term.
Let us make a couple of assumptions about the flows of visitors and see what these hotel figures imply. We assume that the general ratios between the numbers of visitors and the numbers of hotel guests, seen in the last three years, stay relatively stable, and the same happens as well with the occupancy rates and the average days of stay. Then, just filling the new rooms at similar occupancy rates would imply a rise of more than 5 million visitors annually. If all other relationships held, we are talking about an overall number of visitors reaching to the tune of 36 to 38 million people. But it has been claimed by the relevant authorities that 30 million represents, broadly, the limit capacity of the region – an issue that is debatable but will be left aside here – and, consequently, the Mainland authorities have been asked to reduce the number of visas granted to Macau visitors.
But what these figures make clear are, essentially, two things. First, the reduction of the Macau ‘visitor’ problem to a matter of total figures only is misguided and unlikely to address the critical imbalances that characterize those flows. Secondly, either there is a significant and fast shift in the composition and behaviour of visitors, or the increased supply of rooms will face a stable, if not dwindling number of guests and profitability forecasts will need to be fundamentally reassessed.
The main issue for Macau, its livelihood and sustainability, is, and has been for a long time, how to attract the kind of visitor that sleeps in hotels, stays for longer periods, and spends more on local commerce and attractions. With gaming revenues under continued strain, that is the message the figures are stating ever more forcefully.