28 February 2013: Record hotel occupancy rates are rekindling interest in major hotel developments in Australian capital cities, although a stronger supply pipeline is unlikely to significantly impact occupancy rates or yields in the near term.
While recent announcements suggest developers are again seeing value in the hotel accommodation market, Deloitte Access Economics’ Q1 2013 Tourism and Hotel Market Outlook finds that national occupancy rates will continue to climb and forecasts revenue per available room (yield, REVPar) growth of 4.8% per year over the next three years.
Deloitte Access Economics’ Lachlan Smirl said that over the last year, hotel occupancy rates had remained close to the strongest on record in Australia’s four largest capital cities.
“Average occupancy rates have remained at or above 80% in Perth, Sydney, Melbourne and Brisbane, indicating little excess capacity in these markets, especially Perth where average occupancies are above 85%,” he said.
“Despite this, the appetite for new hotel developments has, for some time now, been weak. While there are a myriad of commercial factors at play, in many instances the business case simply hasn’t been there to support investment in hotels.
“Market conditions have necessitated both commercial creativity by developers and proactive steps by government, and announcements in the last six months now suggest the capital city hotel and serviced apartment investment pipeline is strengthening.”
Around 60 projects are at varying stages of development across the country – a considerable strengthening from even 12 months ago. However, as many of the larger projects are not expected to be completed until 2015 or later, they will have a limited impact on supply over the next three years. As a result, national occupancy rates are forecast to increase steadily to 68.2% by the year to December 2015.
The development pipeline includes:
Crown’s announced plans to develop a 350-room six star gaming hotel at Barangaroo
Destination Sydney planning a hotel with up to 900 rooms on the Sydney International Convention and Exhibition Centre site
Four Points Sheraton in Darling Harbour’s proposed 231-room expansion
City of Sydney’s recent approval of the construction of a new residential tower, including serviced apartments, at Circular Quay.
A 246-room Four Points Sheraton hotel in Mary Street in the city’s CBD
Refurbishment of the Chifley Hotel, adding another 150 rooms to the existing site.
BGC selected as the preferred hotel developer for the FESA House site
Proposed redevelopment of the old Treasury building and a Crown Towers development.
While no major developments have been announced, there is a reasonable pipeline across a number of smaller projects.
Mr Smirl said that, despite the greater levels of interest in hotel investment over the three-year outlook period, all major capitals were forecast to see further growth in occupancy rates.
“Demand remains forecast to outstrip supply in major capital city markets, as business travel remains buoyant and international visitors arrivals from emerging economies continue to grow” he said.
“Nevertheless, the growing capital city pipeline suggests that both developers and governments are beginning to respond to record occupancy rates which, over the longer term, should see pressure on occupancy rates ease.”
Other key points from the Outlook include:
After reaching the highest level on record of 65.9% in the year to June 2012, average occupancy rates have improved once more, reaching 66.1% for the year to December
National room rates also grew steadily in the second half of the year, by 1.6% to $149 in the year to December, from the $147 recorded for the year to June 2012., and by 3.3% over the course of 2012
Room rates for the next three years are projected to grow at an average annual rate of 3.7%, reaching $167 in the year to December 2015
Average RevPAR is forecast to increase by 4.8% per year over the next three years, from $99 per room in the year to December 2012 to $114 per room in the year to December 2015.
Key points by city/region:
Occupancy rates have eased slightly over the last 18 months, falling from 86.3% in the year to June 2011 to 84.6% in the year to December 2012 and the result of a 15% decline in business travel
Room rate growth remains similar to the last quarter, with growth forecast to average 3.8% over the next three years to $218 from the $195 recorded in the year to December
RevPAR is forecast to grow by 4.7% over the next three years from $165 in the year to December 2012 to $190 in the year to December 2015.
Trend occupancy rates improved slightly in the year to December from 80.5% in the year to June to 81.0% in the year to December and are forecast to climb steadily to 83.9% by the end of December 2015
Room rates are forecast to grow at an average 4.3% per year over the next three years, rising from $179 in the year to December 2012 to $203 in the year to December 2015
RevPAR is forecast to grow by 5.5% per annum over the next three years, a marginal downward revision, but still indicating relatively healthy growth in yield rates going forward.
Occupancy rates eased slightly in the second half of the year to reach 79.9% for the year to December 2012. Looking forward, they are expected to remain around 80% for most of the forecast period, reaching 81.2% in the year to December 2015
Room rates are forecast to grow by an average of 5.7% annually over the next three years from $175 for the year to December 2012 to $207 for the year to December 2015
RevPAR is expected to grow by 6.2% p.a. on average to $168 by the year to December 2015.
Despite easing slightly over the second half of the year, Perth’s occupancy rates continue to lead the nation – averaging 85.1% over the year to December 2012 and forecast to gradually increase to 86.3% by the end of December 2015
Room rates are also forecast to continue to grow strongly, increasing at an average 9.3% per annum over the next three years – from their current levels of $199 in the year to December 2012 to $259 in the year to December 2015
RevPAR is similarly forecast to grow by 9.8% p.a. over the next three years.
Occupancy rates have stayed around 75% in Adelaide over the last two years, averaging 75.5% for the year to December 2012 and are forecast to remain relatively constant, reaching 75.5% over the year to December 2015
Room rates have remained relatively flat over the last 18 months, but are expected to grow by 2.9% over the three years to December 2015
RevPAR is also expected to average 3.0% per annum.
Trend occupancy rates have declined over the last two years – from 75.9% in the year to December 2010 to 71.4% over the year to December 2012 – but are predicted to improve going forward, reaching 73.5% by the year to December 2015
Room rates are also forecast to improve, by an average 3.5% per year over the next three year – from $162 over the year to December 2012, to $180 by the year to December 2015
RevPAR is forecast to grow by 4.5% over the next three years.
Occupancy rates have risen dramatically in the last year as growth in the Northern Territory economy has resulted in increasing demand for hotel rooms. Over the 12 months to December 2012, average occupancy rates rose to 77% and, while forecast to continue to improve in 2013, are projected to remain relatively flat in 2014 and 2015
Room rates are nevertheless forecast to continue to grow relatively steadily, at 3.9% per annum over the next four years, from $155 per room in the year to December 2012 to $174 in the year to December 2015 RevPAR is forecast to grow at an average annual rate of 3.5% over the three years to December 2015.
Occupancy rates remain below pre-GFC levels, but have improved over the last year, rising to 69.9% in the year to December 2012, and expected to increase to an average 70.4% over the year to December 2015
Room rates and RevPAR also trended upwards in 2012, with room rates growing from $134 in 2011 to average $139 over the year to December 2012 and forecast to grow on average by 3.2% per year through to December 2015.
Tropical North Queensland
Occupancy rates have continued to improve, reaching 59.9% over the year to December 2012 and are forecast to reach 64.4% by the year to December 2015
Average annual growth in room rates of 4.1% is forecast over the next three years, with average rates to increase from $121 in the year to December 2012 to $136 over the year to December 2015
RevPAR is also forecast to grow strongly, with average growth projected to be 6.7% over the three-year forecast period.
Deloitte’s quarterly Tourism and Hotel Outlook utilises the forecasting, modelling and analytical expertise of Deloitte Access Economics, one of Australia’s leading economics advisory practices. The Outlook also draws on Deloitte’s real estate industry experience and insights, and a range of other sources, including hotel data generated by STR Global Limited.
A separate Tourism & Hotel Outlook media release covers the tourism sector.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.