New Hotels Place Pressure on Recovery

Australia’s current hotel development boom will slow the pace of the accommodation sector recovery and stagger occupancy growth over the next 12 months, STR regional manager Matthew Burke says.

Burke, who will be joining The Urban Developer’s upcoming Hotel vSummit on Thursday 25 March, said the record number of new hotel rooms currently under construction, will continue to place pressure on average daily rates.

“It is true that Australia was in the middle of a development boom, one of the differences from prior downturns such as the global financial crisis, so at a market level demand will need to grow faster than the new supply,” Burke said.

Prior to the pandemic, hotel stock was forecast to increase by 5 per cent through to 2024, with over 200 potential projects in planning.

Since 2016, more than 29,000 hotel rooms have been added to the country’s total room stock, equating to an additional 8.4 per cent lift in stock.

By comparison, total hotel room stock rose 7 per cent between 1995 and 1999 in the lead up to the 2000 Sydney Olympics, 4.2 per cent between 2000 and 2004 and averaged just over 6 per cent between 2005 and 2014.

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Midway through 2020, as the pandemic gripped the nation, 5500 proposed hotel rooms in Sydney and Melbourne exited the development pipeline as the construction of new hotels became less feasible in a lower-growth environment.

“For some markets, such as Brisbane, there is very little new supply on the horizon, but for others like Melbourne, there are a lot of projects under construction that are on track to open in 2021 and 2022.

“As the market is not homogenous in nature at the moment there will be properties that take a greater share of the market and those that are more heavily impacted,” Burke said.

Central Sydney’s hotel market, the largest in the country, has continued to struggle in recent months, recording much lower occupancy than other regional locations across New South Wales.

According to recent figures by STR, one in four Sydney hotel rooms sat empty in January, a far cry from an average of 78 per cent in occupancy rates prior to the pandemic.

The W Hotel Sydney
▲ New hotel's coming online will make it harder for operators to lift occupancies and daily rates as the sector tries to recover from the pandemic.

The cost of a night’s accommodation in the city centre has bounced back from anemic figures of $120 a night at the onset of the health crisis to $190 a night.

However, revenue per available room—the key industry metric—fell 67.2 per cent in January, or in financial terms, Sydney hotel owners earned just $51 per booked room across the month compared with $156 a year ago.

While domestic leisure tourism is expected to pick up steadily in the coming months as vaccines are rolled out, international and corporate travel—a big driver of business to city hotels—is expected to take much longer to return.

“Right now demand is well down midweek and is evidenced by February’s preliminary results which typically is a busy travel month,” Burke said.

“Additionally, our forward-looking occupancy on the books has yet to fully see a meaningful uplift in midweek demand.

“Confidence and businesses back in the office are pivotal steps to seeing business travel revived.”

Across the city, a number of new hotels are currently under construction, comprising upwards of 2,400 rooms and 500 rooms in key fringe markets.

New hotels under way include James Packer’s Crown Hotel Resort, One Circular Quay, Pontiac Land Group’s 5-star Capella Sydney and Doma Group's 230-room Little National.

Other hotels waiting in the wings include the BVN-designed Voco Central and 55-storey, $700 million Andaz Hotel.

Meanwhile, The Star is pressing ahead with a $1 billion project at its waterfront site in the Sydney suburb of Pyrmont, with revised plans before council for a two-tower, six-star hotel.

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Article originally posted at: https://www.theurbandeveloper.com/articles/new-sydney-hotel-market