Mr. Troy CraigHotel owners have been quick to recognise the fact that room rates in Australia are low by international standards, however according to Jones Lang LaSalle Hotels’ Digest research, RevPAR (Revenue per Available Room) levels around Australia are at their highest level on record boosted by strong occupancies.
Demand growth remains strong, hence occupancy levels and room rates around Australia have reached all time highs and show clear signs of continued improvement. New development will continue to be constrained as the expensive cost of land and construction often render it unviable.
The newly released Australian Bureau of Statistics (ABS) accommodation data indicates that during the March quarter 2007 Australia’s major hotel markets recorded a 9.8% increase in RevPAR to an all time high of $86. Perth was again the best performing hotel market, Canberra recorded spectacular results and Sydney has improved significantly.
Jones Lang LaSalle Hotels’ Hotel Investment Forecast Matrix – 2007 to 2010
Perth recorded an exceptionally strong quarter with RevPAR surging 22.9% to $108. Occupancy reached a spectacular high of 84.1% and room rates increased by 16.0% to $128. Over the next five years, we expect occupancies to remain in the high 70% range as demand growth largely keeps pace with only modest increases in supply. With high market-wide occupancies, operators have an opportunity to achieve consistent and significant rate growth, with stronger growth in the short term. Demand growth is also expected to remain strong supported by the resources boom, which is stimulating additional travel to Perth and the placement of short term contract workers who are staying in hotels.
Achieving the highest quarterly occupancy and Average Daily Rates (ADR) levels on record, Sydney has turned a corner in regards to hotel trading performance. During the March quarter 2007, occupancy increased by 7.7% to reach 85.8% and ADR jumped 8.0% to $182. With occupancies expected to remain high on the back of consistent demand growth, operators have an opportunity to push growth in ADR prior to the commencement of the next supply cycle. The lack of available sites, high construction costs and current strength of the office sector are likely to continue to defer new hotel development in the short to medium term.
During the March quarter 2007, Brisbane again recorded the strongest level of demand growth out of all major markets around Australia. Occupancy remained high at 79.1% and room rates were up a very strong 9.8% to $138. With demand growth expected to remain modest, occupancies should stay high at around 78-80%, albeit declining slightly over the five-year period. In line with the positive supply/demand outlook, ADR growth will remain strong, particularly in the short term. As a result, the Brisbane City market is likely to continue to record strong RevPAR growth over the next five years.
A 2.4% increase to room supply in Melbourne was offset by very good demand growth, with hoteliers still recording a 1.1% increase in room rates off the back of a strong performing 2006 quarter when the city hosted the Commonwealth Games. New supply that opened prior to the Commonwealth Games is expected to remain fully absorbed giving hotel operators the opportunity to achieve rate growth over the next five years. A couple of large hotel projects are already under construction or proposed, timed to coincide with the opening of the new Convention Centre in 2009. We expect that the opening of the new Convention Centre in 2009 will consolidate Melbourne’s reputation as the major events capital of Australia which may result in stronger demand growth. While Sydney remains less committed to developing appropriate conference and exhibition facilities, Melbourne has an even greater opportunity to capitalise on its current positioning.
Cairns was the only market to record a decline in RevPAR, primarily as a result of disappointing demand and occupancy levels. Room rates however increased by 3.2% during the March quarter 2007. In line with relatively flat occupancy profile, we expect ADR and RevPAR growth to remain in line with historical averages increasing by around 3% per annum over the next five years. As a fly-to destination, Cairns accommodation market is heavily dependent on air services. As the region grows as a destination in its own right, it should benefit further from the expansion of the low cost travel network across Asia given its relative proximity. This was evidenced by the recent introduction of charter flights from Korea during their summer time which provided a boost in visitation to the Cairns market.
Gold Coast benefited from a slight reduction in room supply and recorded the strongest quarterly occupancy level (74.3%) since 1996. However accommodation trading performance on the Gold Coast is expected to remain relatively flat over the next five years. Room rate growth should continue for the next couple of years, however our forecasts do not anticipate that rates will reach previous highs in real terms. Occupancies are expected to increase to around 70% before serviced apartment supply projects currently under construction come on line in 2008. The seasonal nature of the market and dependence on leisure travellers means that occupancy levels on the Gold Coast are typically lower than those achieved in other Australian capital cities. However, the Council is seeking to position the city as a place to do business as well as a holiday destination.
Canberra’s hotel market was the second best performing market in Australia with RevPAR growth of 19.7% during the March quarter 2007. The ACT currently enjoys some of the strongest demand levels in the country, boosted by both the corporate and weekend leisure segments. Darwin also performed extremely well during the March quarter 2007, with RevPAR levels jumping 19.3% to $57, primarily driven by a reduction in room supply and growth in tourism.
Troy Craig leads the Corporate Advisory business for Jones Lang LaSalle in Australasia which incorporates a team comprising 12 professionals. He has carried out numerous valuation, consultancy and feasibility study reports for hotels and resorts located throughout Asia Pacific.
Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide both the depth and breadth of advice required by hotel investors and hotel companies, through a robust and integrated local network. In 2006, Jones Lang LaSalle Hotels provided sale and purchase advice on 186 hotel transactions globally; representing a combined value of US$9.3 billion, a total of 43,272 hotel rooms in 78 cities. In addition advisory and valuation services were provided on 589 assignments globally for 136,270 rooms across approximately 280 cities. The global team comprises 187 hotel specialists, operating from 23 offices in 13 countries. The firm’s advice is supported by a dedicated global research team, which produced over 45 publications in 2006 in addition to bespoke client research. Jones Lang LaSalle Hotels’ services span the hospitality spectrum, from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Their services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels’ clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com
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