History Repeats But Future Bright for Australian Hotel Markets

History repeats, that’s for sure. Remember how bullish we all were before the Global Financial Crisis? Many of us thought the good times would never end, even though history showed that was complete and utter nonsense.

Every debt-fuelled boom is followed by a bust, sure as night follows day. Yet ignorance is bliss. Just ask me. In mid-2007 I wrote that Australian hotel industry was entering “a golden period of prosperity” marked by high demand and low supply.

Within months the booming US housing market began imploding and the first cracks in the global banking system appeared. By 2008, it was all over. Welcome to the real world.

As a result the Australian hotels did not enter a “golden era”. Demand and room rates collapsed in just about all markets throughout 2008 before a fractured recovery began in 2009/10 with a two-class tourism economy emerging.

Many CBD properties are back in rude health and their future looks bright, especially Sydney, Melbourne and Perth, although regional markets remain generally weak.

But no-one is getting carried away this time. Conservatism reigns in an environment radically different from mid-2007. The wounds are still raw.

No doubt this is a major reason why many industry pundits have been talking down investment and development opportunities in the hotel sector despite occupancy rates around 80 per cent or more in Sydney, Perth, Melbourne and Brisbane.

Yet it appears the mood may be changing.

Analyst Dean Dransfield, who only three months ago could not see new hotel development stacking up in financial terms, is now more optimistic.

“People are forecasting powerful things for the east coast cities in terms of high RevPAR growth, and I actually think all these markets will actually exceed people’s expectations,” Dransfield says.

“In the second half of this year, people may well find development opportunities in the mid-market and serviced apartment sectors.”

Overall, Dransfield says RevPAR across all major markets Australian markets will grow 3.4 per cent year up to 2019. Following are his company’s forecasts for each market.

Adelaide: Characterised by variable demand, the Adelaide market was hurt by a nine per cent supply boost in 2011. More hotels are expected from 2013. As a result Adelaide forecasts have been downgraded with long-term RevPAR growth of 2.7 per cent forecast.

Brisbane: The Queensland capital, which performed very well in 2011, looks strong for the next couple of years before an increase in supply during 2013-14 “should slow down rate growth and see occupancies fall below 80 per cent”.

Cairns: The feeling is that Cairns has finally hit bottom after years of slow decline. “Occupancies have returned to above 60 per cent and are forecast to remain so to 2019.” There’ll be some good medium term RevPAR growth off a low base although this market is notoriously volatile.

Canberra: Steadier than a bureaucrat eyeing retirement. Long-term RevPAR growth of 1.8 per cent is forecast.

Darwin: “Having performed strongly since 2005, the amount of new supply has not generated sustained demand. This will see occupancies fall below 70 per cent and remain (there) for some time, placing pressure on rates in the short to medium term. “

Gold Coast: Diminished expectations for this key Queensland leisure market although forecast long-term RevPAR growth of 3.5 per cent is stronger than many other markets. Potential positives include the continued expansion of the Chinese market and a weaker Australian dollar.

Hobart: “After an extended period of strong growth, Hobart is forecast to face consecutive years of RevPAR decline. Long-term Dransfield is forecasting annual RevPAR growth of 1.9 per cent.

Melbourne: The southern capital has absorbed new supply better than expected and the future is looking good with long-term annual RevPAR upgraded to 3.9 per cent.

Perth: Hot market still, strong RevPAR growth of 7.5 per cent forecast to 2013, though could be higher depending on supply.

Sydney: Predicted to be Australia’s strongest market over the next two years. “Occupancy topping 85 per cent in the medium term should drive annual revenue growth of 8.9 per cent to 2013. As major supply comes online from 2015 rate growth should stabilize.”

As for the future, it is bright.

“The outlook for hotel investment operation remains very strong in most Australian capital city markets.

“The supply threat remains distant and minor, and existing occupancy levels are high enough to embolden rate growth, well above inflation over the medium term

Yes, times are good. But say it quietly and never use the phrase: “Entering a golden era”.

Ends.

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One thought on “History Repeats But Future Bright for Australian Hotel Markets”

  1. In terms of occupancy and revPAR, what has held us in good stead in the past and I’m sure will continue to do so in the future, is the natural beauty and unique attributes of the FNQ region. Macro complications like Europe, the dollar etc notwithstanding, the cream always rises to the top.

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