The high cost of travel and accommodation in the Philippines has been a long-standing concern for domestic tourists, destination management companies, and lawmakers. The situation has reached a point where many people now prefer to travel abroad, where they can get more value for their money. The issue is not limited to expensive domestic airfare; even hotels, especially those in Metro Manila, have significantly raised their room rates, surpassing pre-pandemic levels. Unfortunately, this trend is projected to continue in the medium term, posing a serious threat to the government’s goal of attracting 12 million international arrivals by 2028. (Read the BusinessMirror story: ‘Keys Muna’: Imminent hotel room shortage—and resulting higher room rates—could derail PHL’s ambition to lure more visitors, April 20, 2024).
According to a recent briefing by Leechiu Property Consultants (LPC), there is an impending hotel shortage in the country. Only 87 properties are in the pipeline from 2025 to 2028, adding a mere 25,000 hotel rooms to the supply. This means that by 2028, there will be a total of 308,000 hotel rooms available. To achieve the target of 12 million inbound tourists by 2028, there needs to be an annual growth rate of approximately 10 percent. However, the growth in hotel keys during the same period is expected to be less than one percent, significantly limiting the country’s ability to reach its tourism goals. As a result, room rates and occupancy rates will undoubtedly increase, making travel more expensive for both locals and foreigners.
The majority of the new hotels (40 percent) are concentrated in Metro Manila, with the rest distributed among popular destinations such as Cebu, Boracay, Davao, and Palawan. While this development is promising, it may not be sufficient to meet the growing demand for accommodations. Furthermore, factors such as a high inflation rates and the cost of funding pose significant challenges to hotel development. High inflation rates make borrowing and financing more difficult, hindering the construction of new hotels.
The pandemic has also played a role in delaying hotel constructions. Many ongoing projects were halted, leading to a shortage in available rooms. Additionally, the current cost of funding, as reflected in lending rates, further contributes to the impending hotel shortage.
Inflationary pressures are expected to drive the average daily rates (ADR) of hotels to continue rising, outpacing occupancy and revenue per available room (RevPAR). While ADR typically lags behind occupancy growth, hotels have been focusing on increasing rates to offset higher operating costs driven by inflation. Luxury hotels in Metro Manila have already experienced significant ADR growth, surpassing pre-pandemic levels. This trend, coupled with the slow return of international travelers and rising operational costs, has made it challenging for hotels to generate profits.
The Department of Tourism (DOT) has projected inbound arrivals to reach 11.5 million and domestic trips to reach 137.5 million by 2028. However, the current National Tourism Development Plan (NTDP) lacks a clear identification of the number of hotels needed to accommodate these projected numbers. To address this, the DOT is working with the Philippine Hotel Owners Association to develop a strategic action plan for the hotel industry. The plan aims to identify incentives for hotel investments, required facilities, and suitable locations for construction.
It is crucial for the government and relevant stakeholders to address the rising cost of vacationing in the Philippines to ensure sustainable tourism growth. Efforts should be made to encourage the construction of more hotels, especially in popular tourist destinations beyond Metro Manila. Collaboration between the public and private sectors is essential to develop a comprehensive plan that addresses the challenges faced by the hotel industry, such as inflationary pressures and high funding costs. Additionally, exploring measures to promote competitive pricing, improve infrastructure, and enhance the overall tourism experience can help attract both domestic and international travelers.
The Philippines has immense potential as a tourist destination, offering diverse attractions and natural beauty. However, the stakes are high, as a shortage of affordable, quality accommodations could severely constrain the growth of the tourism industry—a critical driver of economic development, job creation, and foreign exchange earnings. Decisive action is needed now to avert this looming crisis and unlock the full potential of the Philippines as a premier travel destination.