Australia’s hotel construction boom will run for at least another two years as surging tourism spending, forecast to reach $167 billion by 2025, becomes an even bigger driver of the economy.
More than 8000 hotel rooms are under construction, but the potential pipeline is much bigger at almost 30,000 rooms, a number hotel consultant Dransfield says could easily be absorbed by record numbers of overseas and domestic travellers.
As operators and investors gathered in Sydney for the biggest hotel conference of the year, researcher BIS Shrapnel forecast the value of accommodation construction to peak at more than $2.2 billion in 2016, but to remain elevated in 2017 and 2018.
“Hotel building is currently enjoying a resurgence, its strongest since the late 1980s”, BIS Shrapnel associate director Kim Hawtrey says.
“We’re seeing a five-year run for accommodation construction, as the market plays catch-up following the post-GFC slump.”
Dr Hawtrey said the lower Australian dollar was encouraging locals to holiday at home, and this along with steady growth in Asian inbound tourism was pushing up hotel occupancy rates and driving new hotel building.
“All of the major state capitals will see sizeable projects commence over the next 12 months, including Adelaide and Perth,” he said.
Signature projects include new Ritz Carlton’s in Melbourne and Perth being developed by Hong Kong’s Far East Consortium and to be operated by Marriott, Lendlease’s new Sofitel hotel at Darling Harbour, acquired by investor Jerry Schwartz and to be operated by Accor, and longer-term projects such as James Packer’s proposed Crown Resorts casino and hotel at Barangaroo.
British giant IHG is undertaking its biggest pipeline of new Australian hotels in a decade with 11 under development including five Holiday Inn Express hotels as part of a franchise agreement with developer and operator Pro-invest.
“Unless the Australian dollar strengthens to a too-higher point, I see the tourism figures just growing year on year,” Pro-invest CEO Ron Barrott said.
“There’s not enough hotel rooms to accommodate this growth – I’m talking about providing guests with quality at an acceptable price. You need the right mix of hotels and the right quality,” he said.
Another big player is Starwood (soon to merge with Marriott to create the world’s biggest hotel company), which also has 11 Australian hotels under development and has brought a new mid-scale brand, Aloft. to Australia.
“Hotel development in Australia is stacking up better than ever due to stable occupancy rates and rising room rates,” Starwood’s Pacific director of acquisitions and development Andrew Taylor. said.
Local operators and developers are also very active led by the listed Mantra Group, the country’s fastest-growing hotel operator, which has a dozen hotels in its pipeline including new hotels at Sydney Airport, in Perth and Canberra. Fellow ASX-listed hotel operator Event Hospitality and Entertainment is also adding new hotels under its art-inspired QT and Atura brands.
According to hotel consultant Dransfield, more than 8000 hotel rooms are under construction nationally, but this is just a fraction of the 30,000 rooms – about 120 hotels – which could be built during the next nine years if all proposed and market-driven projects get the nod.
Despite the growing presence of Airbnb, Dransfield says there’s more than enough demand to absorb a further 30,000 hotel rooms, especially in markets such as Sydney and Melbourne where occupancy rates in the city centre have surged towards 90 per cent.
“We could easily take another 50 hotel proposals, most of it in Sydney and Melbourne,” Dransfield director Dean Dransfield said.
A City of Sydney spokeswoman said it had received 25 new applications for visitor accommodation worth more than $1 billion since the start of 2014, and this will add 1600 rooms to the existing stock.
“We are working closely with accommodation and tourism experts to help provide the rooms the market wants,” she said.
The City of Melbourne is assessing 18 hotel or serviced-apartment developments offering 5000 rooms.
“Strong occupancy rates are indicative of a booming tourism sector and Melbourne’s tourism sector is definitely booming, with hotel occupancy rates tracking above 90 per cent,” Melbourne lord mayor Robert Doyle said.
Asian tourists surge
Driving all this development is the dramatic rise in tourist arrivals and spending, sparked by the fall in the Australian dollar at the end of the mining boom, which has made travelling to Australia much cheaper for overseas visitors and travel abroad much more expensive for Australians.
International arrivals surged 9.3 per cent last financial year to 7.8 million, according to forecasts from Austrade’s Tourism Research Australia.
They will rise to 12.3 million by 2025 led by China’s travel-hungry middle class, which will contribute 43 per cent of the growth in arrivals during the forecast period.
Local accommodation bookings are also rising strongly. They rose 4.5 per cent to 328 million nights in FY16 and will rise 29 per cent to 423 million by FY25 according to TRA.
Most will be holiday bookings; a pattern that is “expected to persist during the forecast period as long as the value of the Australian dollar stays low”.
As a consequence of all this growth, tourism spending surged 8.2 per cent in FY16 to $117.5 billion and is forecast to reach $167 billion by FY25.
“The rising middle class in the Asia-Pacific, increasing connectivity and an ageing demographic will see people travelling, for longer and spending more.
“This makes for a positive outlook for Australia’s tourism industry, which augurs well for the thousands of tourism businesses across Australia,” said Janice Wykes, assistant GM at Tourism Research Australia.
Many hotel investors, owners and operators are riding the tourism wave with occupancy rates hitting 85 per cent in Sydney and 82 per cent in Melbourne, according to June figures from research firm STR.
The once-struggling leisure markets such as the Gold Coast, Sunshine Coast and Tropical North Queensland have also had occupancy and room rates lift substantially, benefiting from direct flights from Asia into these destinations.
Dransfield forecasts average room rates to rise 3.8 per cent per annum during the next nine years, rising from $175 a night to $242 a night by FY25.
Combined with rising occupancy rates, revenue per available room (revPAR) – the key industry performance metric – is forecast to rise from $135 a night to $194 by FY25, making new hotel developments stack up for local and overseas investors.
“We’re getting more five star and upscale four star than historically, but also more limited service or economy hotels. So the growth is at the upper and lower end of the market,” Mr Dransfield said.
“International operators are leading a resurgence in Australia and are restocking their portfolios after a 15-year hiatus.”
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