Sydney And Melbourne Drive Fragmented Hotel Market

Australian hotels continue to perform strongly with national REVPAR up 3.6 per cent during the 2015/2016 financial year, however sector performance remains fragmented with key cities Sydney and Melbourne driving the market, according to Savills Australia.

Savills National Head of Capital Strategy Chris Freeman said the lower AUD was seeing more Australians holiday domestically while inbound tourist numbers continued to improve, but economic drivers seen in other sectors continued to fragment national performance.

NSW, and in particular Sydney, were the standouts over FY-16 with average REVPAR in NSW overtaking Victoria during the year as NSW’s economy continues to lead the nation.

"While performance is not as volatile as office markets, it is certainly similar with Sydney recording a 9.1 per cent gain and Melbourne 1.5 per cent, while Brisbane and Perth fell 4.5 and 4.3 per cent respectively," Mr Freeman said.

"The Gold Coast performed very well, with occupancy rates growing by almost 3 per cent driving an average revenue rise of 7.5 per cent.

"This is reinforced by job advertisements across the Gold Coast that have increased 21.3 per cent in the past three years, against 7.9 per cent for Australia as a whole, showing the lower AUD and Commonwealth Games preparation is driving strong momentum in the city,’’ Mr Freeman said.

The worst performing capital was Darwin, where a slowdown in resource construction activity saw a material 16.8 per cent fall in average room revenues over the year.

Managing Director of Hotels for Savills Australia, Michael Simpson, said the investment market continued to be attracted to Australian hotels which had posted strong risk-adjusted returns.

"The key markets of Sydney and Melbourne have shown strong and consistent growth in performance. They remain the most favoured investment destinations for both domestic and international hotel buyers.

"Demand for hotel investment opportunities is far outstripping supply, with arguably the widest geographical spread of buyers in Australian history seeking hotel investments in Australia," he said.

Mr Simpson said key investors from markets including Asia, USA, UK, and Europe were aggressively chasing new opportunities in Australia, while hotel owners were reluctant to sell into those markets despite record prices including the recent $700 million sale of the Ribbon Hotel and Residences in Sydney, and a soon to be announced record price for a Collins Street Melbourne hotel.

He said the Brisbane, Perth and Darwin markets were now presenting themselves as sound counter-cyclical investment opportunities, especially well located hotels with repositioning or other value-add upside.

"Debt remains cheap and readily available for hotel assets and there is a positive spread between the cost of debt and investment yields.

"Australia remains a safe-haven for international investment capital and the recent official figures from the ABS are sure to see strong demand for Australian hotels continue,’’ Mr Simpson said.