DEMAND AND SUPPLY OF HOTEL ROOMS IN SINGAPORE �S CENTRAL AREA: AN ECONOMETRICS MODEL

Abstract

A comprehensive analysis of the Singapore's hotel sector in the central area revealed the current lack of econometric methods utilised to determine and establish the key relationships between the demand, supply and rent functions and their respective potentially significant micro-economic and macro-economic indicators. This is crucial as the mismatch in the demand and supply for hotel room had reduced rents, raised vacancies. This in turn affects Singapore's economic well-being as tourism is one of the fastest growing export industries and contributes significantly to the national income by generating output and employment growth in Singapore The findings showed that utilising simultaneous equations econometric model based on theoretical premises and previous works enabled the estimation of the structural equations for the hotel demand, supply and rent. Thus, useful insights and possible explanations on the significance of the indicators that influence the hotel room supply and demand in the Central Area, and their overall impact on the Singapore hotel industry were drawn based on the estimated equations. For the demand equation, demand is found to be price inelastic and its only statistically significant explanatory variable is the number of tourists‟ arrivals. For the supply equation, the number of tourists‟ arrivals, the hotel room rate lagged by four periods and the business expectations of the hotel sector lagged by one quarter except the prime lending rate are all found to be significant. Lastly, for the rent equation, all four variables; hotel room rate lagged by one period, quantity demanded, occupancy rate and average monthly nominal earnings of employees all have significant influences on the hotel room rate in the short run.